Of petroleum and fertiliser prices

For the first time in over three years, the government revised petroleum products prices mid of the month. Recall that the government had decided to revise petroleum prices every fortnight from 2017. Before moving on to the merits of the decision, revising prices fortnight is a smarter move, as it helps absorb the volatility much better.

With the Opec deal now materialised, oil prices are destined to be on the higher side and possibly more volatile. Recall that the government was charging less than the standard 17 percent GST on motor spirit at 14.5 percent, in the revised prices announced on December 31, 2016. The rate on HSD has also been jacked up from 25.5 percent, a fortnight ago to 28 percent now. Feeling the pinch, the decision to revise the prices upwards seems the right move, but it was not seen coming.

The move at current rates and consumption, would fetch on an average, an additional Rs2.5 billion per month. This could translate into an additional Rs15 billion for the remaining fiscal year, and that should do well for the cash strapped government. In all fairness, the additional collection should surpass the estimated amount, should the government stick at standard minimum rate of sales tax on petrol.

Read this with the news that the Prime Minister in brotherly love, accepted the Chief Minister Punjabs request to restore subsidy on fertiliser, just a day after having notified abolishment of the same. This column had questioned the wisdom behind the sudden move, especially when the off-take was low and two-thirds of allocated subsidy had already been utilised.

Withdrawing the decision sounds the right move, as it will require no more than Rs6 billion contribution from the government in the next six months. This is where the petroleum price upwards revision starts making sense. It would create more than enough room for fertiliser subsidy to be utilised, even if the government absorbs some of the hike in petroleum prices, going forward.

While it had all ended well on both accounts of petroleum and fertiliser, it also made a laughing stock of the government. Talking of stocks, foreign investors shed a small matter of $14 million worth of fertiliser shares, as the news broke. Decent money was made and lost, when in fact, nothing on the ground changed. This is the kind of decision making that the government should do without, even though the end result now makes more economic sense than it did before.