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Sarkaritel.com News and Features
CII for market determined
oil price mechanism
New Delhi, December 04, 2006
Even while keeping the welfare considerations and the
economic costs in mind, it is imperative for India to
gradually move to a market determined oil price mechanism said
the CII President in a Press Release issued here today. As
long as international prices of oil are within a specific band
the market forces should determine the price of petroleum
products in the domestic market he went on to say. Any
movement of international prices beyond the price band must
have an automatic response on the price front, which is known
in advance, said Mr R Seshasayee.
The Rangarajan Committee report deals with this aspect of
pricing in detail and it is important for the government to
ensure that India moves in that direction said the CII Press
Release.
The important thing for India is to look at ways to reduce
its dependency on oil imports, reiterated Mr Seshasayee, who
had highlighted this issue in May of this year, when
international oil prices were creeping up to threatening
levels. 70% of India’s oil consumption is imported.
In addition the other damages being done to the
fundamentals of the economy is the fact that owing to the
recourse that the government takes to the debt market for
financing oil deficits merely passes the liability onto our
future generation, which is economically and ethically not
correct. We cannot afford to grow today at tomorrow’s expense,
said Mr Seshasayee.
While the current buoyancy in the economy makes financing
through receivables possible, it is quite possible that the
economy may not be this robust always and then the lack of
liquidity in the system may prove to be a major bottleneck.
The CII President felt that the current reduction in prices
might help in containing headline inflation within the 5.5% to
5.7% level by year-end. Therefore, as a short term measure the
price reduction would be welcome by the user community.
However, this should not detract us from the objective of
letting market forces have a greater role in the pricing of
oil, he went on to say. Our focus should also remain on
subsidies in LPG and Kerosene, which need rationalisation
urgently. This needs to be part of the larger fiscal exercise
in oil, where what needs to be done is to follow the
Rangarajan Committee Report and adopt the formula for changing
over to trade parity prices and rationalise state taxes.
Government should make all oil products VATable and switch
over to GST by 2010 said the CII President
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