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Effect of Deregulation of Pol Products

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Submitted By emor
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The recent moves of the government to gradually deregulate the Petroleum, Oil and Lubricants(POL) sector in India as part of the agenda of ‘neo-liberal reform’ has generated discontent among the people. In the run-up to complete deregulation, there are instances of increase in the domestic price of POL products that are proportionately more than the rise in their international prices. In the most recent instance (of 13th September, 2012), the diesel price was raised by Rs.5 per litre at one go, even without any rise in international prices. These steps are being taken to eliminate the government subsidy on these products in a step-by-step manner.

Deregulation of the POL sector is bound to eliminate the direct or indirect subsidies completely. And reduction in subsidy, according to the government, is the need of the hour in order to reduce the fiscal deficit as proportion to GDP. Deregulation is also necessitated in the current neo-liberal environment because if the government keeps subsidizing the public sector owned oil marketing companies (OMCs) like Indian Oil, Hindustan Petroleum and Bharat Petroleum, then the private companies like Reliance and others would not get a ‘level playing field’ and they would not be able to compete in price. In this way, the present subsidy regime indirectly restricts the private players from entering the oil marketing sector.

Hence, if the priorities of the government in power are the reduction of subsidies and ensuring a ‘level playing field’ for private players rather than containing inflation and generating employment and growth, it would opt for a policy of deregulation. “A market-determined pricing system for petrol and diesel can be sustained in the long-run by providing level playing field and promoting competition among all players, public and private, in the oil and gas sector” (Kirit Parikh Committee...

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