Indian Government is considering subsidies for private oil marketing companies like Reliance, Essar and Shell. This move as – per the government – will be a level playing field.
Level playing with the state-owned oil marketing companies which get subsidies for providing subsidized petrol to the public. Private oil marketing companies like Reliance and Shell were selling petrol and diesel at the prices which are not set by the government. This is typically 30%-40% higher than what a Bharat Petroleum or a Hindustan Petroleum would sell. Who would buy that in times like these?
Reliance and Shell has to close out most of its petrol stations starting in April 2008. Situation did not improve and they remain closed or were acquired by the state-owned oil companies. Do you think that’s fair? It is not. Competing in a market where you cannot really think of bottom line and has to think about how to stay competitive with companies which are backed by the government – that is a horrible market to compete in!
Quite rightly the private companies got out of it. The hope till now for the existing private oil companies is at some point of time government will remove the subsidies and will let the market decide the price. Apparently that some time might never come.
When economists and policy makers are making recommendations on how to introduce market regulated pricing, government has its own ideas of level-playing field. It is planning to give subsidies to private companies too.
If I had my lateral thinking hat on, then I would really appreciate the government’s move because that is an idea no one had thought about.
But, if we let the government or the oil companies absorb the shocks how will the people know what they are paying for? How will they change their driving habits? When will public transportation get better?
Suggested Reading : The paradox of alternative energy