LPG price hike: Fraud in name of free-market; Indian consumer doomed to suffer both when prices rise and fall

It is another instance of the diabolic game of giving by the left hand and taking by the right, the Modi government has played a prank on people by raising LPG prices. After all the hype and hoopla about the excise duty cut, though negligible in terms of the total tax, by the Centre, following by much sermonising to the states to follow suit, the price of the LPG gas meant for commercial use has been hiked by Rs 100 per cylinder. This is the second price increase in the space of a month.

The price increase for commercial use LPG means it will have a ripple effect, affecting every sector of the economy, thus further burdening people. From transport to food, it will force price increases in every sphere of citizen’s life, already down in the dumps due to a sequence of debacles, man-made as well natural.

First it was Modi’s misadventure of demonetisation, followed by a premature lockdown, whose timing went terribly wrong, forcing the century’s biggest job displacement and finally the Covid crisis over which nobody had any control. With spiralling inflation, the new price increase will also have serious implications for the economy, further complicating a much-needed, but reluctant recovery.

To add insult to injury, the price increase happens when the petroleum prices in the world market are crashing, driven by fears of a new wave of infection on account of the more dangerous Omicron variant of coronavirus, spooking financial markets and rattling the crude market in view of heightened worries about oil use. The result is that crude futures have recorded their biggest monthly declines since the outset of the pandemic, which means petroleum prices are at their lowest levels in 20 months.

But the steep decline has not seen any proportionate reduction in the price of fuel for Indian consumers, who pay some of the biggest rates in the world for their consumption. This is despite the fact that the government has a so-called open market policy in place, under which market forces are supposed to determine the prices. Now, the hike in LPG prices comes like a bolt from the blue.

The government has been committing fraud on the people and getting away with it, by blaming open market prices for high fuel prices and claiming that the prices are fixed by the oil marketing companies. In fact, the Modi government’s so-called free market oil policy is by far the biggest joke of the century.

In any situation where market forces are allowed free play, prices go up when conditions are in favour of suppliers just as the reverse is true when there is less demand and more supply. There is no other extraneous element involved in the price discovery of any product and much less in the case of oil, where even a change in perception can determine price behaviour.

As opposed to this, in a regulated market, which used to be the case in India, the prices used to be regulated, with the government ensuring that these do not cross a level that is beyond the capacity of the people to pay by absorbing crude price increases through a system of subsidy or a cushion by drawing down from dedicated resources set up for the purpose. The new system was supposed to give the oil marketing companies the freedom to fix the selling price on the basis of the petroleum prices in the global market.

This should have meant that when international prices go up, the domestic prices will correspondingly go up, but when the price movement in the reverse direction, consumers get the benefit of lower prices.

India’s free market oil policy, however, has meant that when international prices go up, consumers have to necessarily pay more, but they don’t get any benefit of lower international prices because the government rigs the prices through a diabolical system of special taxes. This means that every price increase is an opportunity to make money, but a price fall presents itself with a bigger opportunity to make more money. And the government has a free market bogey to blame.

It is time that this biggest institutional fraud by the government is challenged in the courts, which thankfully have been taking a more critical view of government’s omissions and commissions of late. That is the only hope left for the fuel consumers.

(IPA Service

Views are personal)