While these measures have come as no surprise, the hikes have been less than anticipated considering the Government has gone to town about how critical the situation of the oil pool account is following the sharp hike in international prices for crude and refined products. Kerosene, which carried a subsidy of Rs 7.83 per litre, will now carry a subsidy of Rs 5.83 per litre, while LPG will continue to be subsidised a whopping Rs 132 per cylinder (compared to Rs 162 prior to this hike). In the current year the subsidy on LPG and kerosene alone is expected to be around Rs 40,000 mn and Rs 20,000 mn respectively, and for 2000-01 this could have zoomed to Rs 110,000 mn and Rs 70,000 mn at the old prices.

With the new prices in effect, the oil pool account is expected to now show a deficit of Rs 63,000 mn by the end of fiscal 2001. This figure will hopefully get revised downward - as there is good reason to believe that oil prices will decline from their present highs over the next few months - but this should not make us complacent on the need for price corrections.

While the hike in kerosene prices is much more difficult to make, and there is some justification for subsidising a more targeted distribution through the PDS, there seems little reason to subsidise LPG - it is by no means a poor man's fuel. While LPG prices have been revised upwards many times in the past, the last significant hike in kerosene prices was as far back as 1975 in the wake of the oil shock. Free marketing of LPG and kerosene commenced about three years ago and a few private sector companies have since entered both these sectors.

In the case of LPG, in particular, their experience has so far been poor. The price differential between (the subsidised) LPG marketed by the oil PSU's and that of the private marketers has been too significant to allow the private entrepreneurs to make a dent in the markets, and it seems unlikely that the present hike will make all that much of a difference to their fortunes.

The Government has predictably already attracted flak from even its allies on the price hikes, but it is regrettable that it did not muster the courage to push through steeper hikes. The problem with the oil pool account still remains, and would require a further hike in prices to set right, and it could have been more prudent to have done the exercise in one go.

There are no indications if any further price revisions will come about in the near future, although the petroleum minister has indicated that a hike in diesel prices - which have not been revised since last October - will take place only towards the end of the year. (Diesel, which is supposed to be priced on an import parity basis, is presently subsidised at nearly Rs 2 per litre, and contributes significantly to the oil pool account).

Any hike in diesel prices will invite the wrath of the transporters and the farmers, and the Government seems keen to avoid this at the moment.

It is important for the Government to build a political consensus on reforms for the hydrocarbon industry so that unpleasant decisions are taken quickly and on sound economic judgment. Obviously, this is easier said than done, but a road map that outlines this has already been created. It is time that hydrocarbon sector reforms are put back on track so that the timetable for deregulation of the entire hydrocarbon industry is rigidly adhered to.

(The author is editor of Chemical Weekly)