Sep 30, 2008

India - Crisis of Committees


No official in the ministry of petroleum and natural gas will like to admit this on record. But most of them will acknowledge in private that the political leadership at present is in no hurry to accept the recommendations of the B K Chaturvedi Committee, set up to examine what should be done to defuse the crisis that has gripped India’s oil sector in the wake of the sharp rise in international crude oil prices.
This, of course, is not a comment on the appropriateness of the Chaturvedi Committee’s recommendations. Many of the recommendations, particularly those relating to a phased aligning of domestic petroleum product prices with the international market rates, should have been accepted without any fuss. But with the inflation rate hovering around 12 per cent, even the bureaucrats in the petroleum and natural gas ministry realise that no government will have the courage to implement such a suggestion at present.
What has surprised them is that a committee, headed by a former cabinet secretary, did not foresee the impracticality of implementing a suggestion that would obviously pose an immediate political risk for the government. Those who have worked with Chaturvedi point out that he did understand that the government’s hands were tied as far as raising petroleum product prices now were concerned. Even while Chaturvedi was examining the oil-pricing issue, there were analysts’ reports that forecast a four percentage point rise in the inflation rate if domestic petroleum product prices were to be fully aligned with the international market rates.
So, Chaturvedi must have realised that his recommendations on price increases would not be implemented at least till the inflation rate declined to an acceptable level, which was unlikely in the next few months. But at the same time, he must have reasoned that he should not have excluded from his report a suggestion that he thought was correct. The point that is now being debated among bureaucrats is whether committees appointed to recommend strategies to tackle a crisis should only follow the text-book model on what should be done or should widen the scope by making suggestions that may not satisfy the purists, but may be politically acceptable, more practical and workable.
The irony, of course, is that even the suggestion that the petroleum and natural gas ministry thought was practical and workable has few takers in the government. Among the many suggestions on petroleum product prices, the Chaturvedi Committee had recommended dual pricing of diesel. The petroleum and natural gas ministry accepted the argument that introducing dual pricing of diesel at the retail level would be difficult to implement and lead to widespread diversion of low-priced diesel to those sections which are expected to pay a higher price for the fuel.
So, it modified the Chaturvedi Committee’s recommendation and suggested that dual pricing of diesel should be allowed only for bulk industrial users of the fuel. Initially, it fought hard to force the Indian Railways to pay a higher market-linked price for the diesel it consumes. But the proposal did not make any headway. Now, the petroleum and natural gas ministry is trying hard to force bulk industrial users like large industries to pay diesel at the market rate, which would be almost 65 per cent more than the prevailing subsidised price. The ministry argues that it would be able to reduce the oil companies’ under-recovery by Rs 9,000 crore a year.
The proposal is still under examination by the finance ministry. There is some hope that if the finance ministry does not clear the proposal, at least there will be some additional compensation in the form of more oil bonds during the year. But so far even the first installment of oil bonds worth Rs 28,000 crore has not yet been cleared. The oil companies have to wait till Parliament clears the proposal in its October session.
Similarly, the recent softening of the international crude oil prices has helped reduce the oil companies’ under-recoveries from the earlier estimate of Rs 218,000 crore to Rs 175,000 crore. But this amount is still huge and there is a gap that has to be met by the government’s oil bonds.
If recommendations by committees, set up to resolve a crisis, are allowed to gather dust in government cupboards, the very exercise of asking an expert or a retired bureaucrat to examine the problems and make suggestions loses credibility. Unless it is made mandatory to implement the recommendations of expert committees within a fixed time frame.

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