They have floated the idea of the cess to give a signal: consumers must put up with high prices of oil products. The cess is the first indication that select products may in fact become dearer. Crude prices abroad have collapsed to below $10 a barrel. But administered prices of oil products assume a much higher crude price. The expectation that product prices (petrol, for example) will come down as a consequence of the fall in crude prices abroad is precisely what is being countered by the beleagured finance ministry.

What is of significance is notthe proposed cess per se, but the strategy of keeping domestic oil prices high to rescue the budget. The consequent bonanza will go to the finance ministry, and not to the oil companies. The latter will continue to get the retention prices. The excess profit from falling crude prices and high fixed product prices goes into the oil pool account.

This account had gone into a massive deficit. To cover this the government issued five-year bonds at 10.5 per cent interest. The bonds give the government sufficient time to reimburse the oil-pool account. But after the bonds were issued, the deficit in the oil-pool account has halved, thanks to the decline in crude prices abroad.

The government's liabilities to the account have gone down more rapidly than programmed. It is now proposed to slow down the decline in the liabilities, reverse it in fact, by tapping the oil-pool account. This could get the government a few thousand crore rupees to fill the hole in the budget.

It is another matter that the strategy,based on high product prices, will disappoint consumers across a wide spectrum. This could cost the government dear in political terms. But faced with an unusual slack in excise revenue collections in particular, Yashwant Sinha has little option. His predecessor, P Chidambaram, resorted to one-time tax collections under the voluntary disclosure scheme, but nevertheless exceeded the targeted fiscal deficit by a wide margin. It is difficult to say if by drawing upon what belongs to the oil-pool account, Sinha will fare any better.