Week after week, the consumer frustration lashes out and media is abuzz over the government unleashing another petrol bomb. The governments decision on revising petroleum prices on weekly basis has gathered a lot of criticism in a small span of months.
Generally, the intention behind frequently revising petroleum product pricing is the incorporation of international price fluctuation more accurately, especially advantageous when the benefit of a price fall can almost immediately be shifted to the end consumers.
Ideally, a weekly price revision in comparison to the earlier practice of monthly and fortnightly modifications is a step that can make changes in small doses more acceptable to the consumers. In many developed and emerging market like US, Europe and Brazil price revision in tandem with daily international crude prices, making it easier to pass the benefit to the consumers quickly, or the burden gradually.
However, strong concerns like overburdening the individuals and businesses, and increased likelihood of hoarding and artificial shortages have surfaced well.
With respect to authorities and industries clamoring against the weekly price adjustment, one rationale that explains the reaction is the logistics and the governance mechanism in the country. A movement in the prices is followed by an immediate shortage of fuel. Its time to tune up the system!
Secondly, be it that of the citizens, traders or the industrialists, the consumer literacy rate to benefit from increased frequency of prices correction is nil.
However, all such arguments are beaten by the circular debt crisis, a big consequence of the not passing on the burden of price fluctuation by government, as pointed out by to Farooq Rehmatullah, the energy expert.
With successive governments absorbing instead of passing the burden onto the consumers for political or similar reasons, it is impossible to ward off the harsh reality behind the miseries of the masses today.
On the hindsight, the primary reason behind the inefficiencies of petrol pricing scenario lies in the fact that the government, whether intentionally or unintentionally, has encouraged the consumption levels in the name of subsidizing. The policy for subsidizing requires government capacity and financial cushion, both of which are definitely non existent in the energy sector.
A classic example quoted by the energy expert was that of CNG and the lopsided policies in this regard resulting in irrational use of natural gas and has created massive shortage of it in the country: while the governments aim for subsidizing should have been the motor cycle owners who continued to bear the brunt of higher petrol prices, the car owners have enjoyed the golden days of this low cost fuel.
The decision on a more frequent price revision mechanism makes a lot of sense but warrants higher regulatory role at the same time. There are other ways of tackling the impact of substantial increase in petroleum prices like reducing consumption tax which is close to 22 percent of the price of petrol, and maybe setting some ceiling for upward price fluctuations.
The fiasco in the election year 2008 was the result of not passing the prices for months. Fixing the price on weekly or may be daily basis could however avert a possible repetition of 2008.
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