International prices of crude oil is constantly rising, which increases the expenditure of the government.
To address this union government need to introduce reforms in the petroleum sector.
How prices of crude oil impacted the Union government?
In the first seven months of 2017-18, the government’s subsidy bill on petroleum products has gone up by over 30 per cent.
In April-October 2016, it was Rs 16,237 crore and in the same months of 2017, it is estimated at Rs 21,246 crore.
At this rate, the current year could well end with a total petroleum subsidy bill of about Rs 35,000 crore, substantially higher than the Budgeted subsidy provision of Rs 25,000 crore.
How government addressed fertilizer expenditure?
In the financial year 2017-18 the subsidy bill for urea has declined by about 30 per cent.
Against Rs 39,123 crore spent on urea subsidies during April-October last year, the expenditure this year in the same period is only Rs 27,398 crore.
This significant reduction in the urea subsidy bill was possible largely due to the government’s focus on launching Neem-coated urea with renewed energy to prevent its diversion and misuse.
But the use of improvised packages for urea led to an increase in prices, the new packages had less urea for the same price.
By this government has achieved reducing the expenditure as well as excessive use of urea.
What reforms need to be introduced in petroleum sector?
As a first phase of reform government raised retail prices of petrol, diesel and cooking gas, in small doses it has worked.
Competition among refiners to buy crude oil at the best prices from the market and use their technological skills to process them more efficiently need to be increased.
It will encourage refiners to be more competitive and cut their costs to increase their margins.
Simultaneously, the retailers should be encouraged to price their products at levels determined by their own considerations of costs and margins.
The current practice of collective retail pricing of petroleum products with changes announced in agreement should be abandoned.
