INDIAN PETROLEUM SECTOR SUBSIDY CONUNDRUM

The Government of india finally implemented a long overdue price hike in diesel, LPG & Kerosene.

Even as inflation statistics continue to remain uncomfortably high, the government had to finally bite the bullet!
The government must come up with a long term viable pricing policy for petroleum products.
The Oil Marketing companies like BPCL, HPCL & Indian Oil cannot afford to keep subsidizing retail fuel prices. Currently their profitability is dependent on Oil bonds - a government handout!
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Upstream marketing companies like ONGC & GAIL are helping the government to bear the losses from under recoveries, and this is preventing them from investing in Oil Assets and building Oil & Gas infrastructure like gas pipelines etc
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The government will also have to step up investment in public transport infrastructure like metro rail projects & urban bus transport networks. Perhaps such a move will help reduce traffic congestion and in the long run reduce our heavy dependence on petrol and diesel.
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Lastly I would like to point out that a large chunk of the levied retail fuel price on fuels like petrol and diesel, consists of govenment taxes that does not go to the oil companies, but is a major source of government revenue!
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It's time that a truly sustainable long term fuel pricing policy is formulated.
With Crude Oil prices that continue to trade around $100/barrel, the government must come up with such a policy as soon as possible.
Below is an announcement by the Govt of India in the Economic Times on the 27th of June 2011.