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CRUDE MATTERS

The Central government has chosen to own three-quarters of the oil refining industry. It need not have done so. The past four years saw a beautiful stock market boom; if the government had sold off its shares in oil companies, it could have abolished all taxes for a year. But the price it would have got was a fraction of the real value of the companies. For as long as it insisted on interfering in the pricing decisions of the oil companies, no buyer could have been sure of the profits he would make, and all buyers could have been absolutely certain that the interference would only reduce their profits. The very thought of selling off the oil companies would be anathema to the uncommitted socialists who rule with the help of committed communists. India must resign itself to their running the oil companies. But even they should be able to recognize the damage they have done to the long-term future of the companies. Two of them were included amongst the companies an earlier government called Nine Jewels. These two — the Oil and Natural Gas Corporation and the Indian Oil Corporation — have been financially so damaged that no one would mistake them even for crystal. The IOC made its first loss in two years in the first quarter of 2008.

Since most banks belong to the government, its companies can never run out of cash, however undeserving they may be of loans. Still, the IOC has been finding it difficult to pay for the crude it imports. It has stopped all investment to save money. Till recently, the IOC and other refiners used to get Central government bonds for a third of the losses they made on account of the freeze on prices the government has imposed. Another third was borne by government-owned suppliers of crude and gas, principally the ONGC. A third they carried themselves. But that third is breaking their backs. This year their losses may cross Rs 2 trillion — just about a third of the entire government revenue.

This is an age that will see dwindling oil and gas reserves. In this age, India’s oil companies should be ranging across the entire world and buying oil concessions wherever they can find them. If they do not, the country will face a dire future. It will have to fall back increasingly on the shrinking world market for refined products, and it will pay for them through the nose. That is precisely the future the Central government is choosing for India, simply because its supreme procrastinators do not know when to stop dithering. At some point, they must begin to let the rise in crude price be reflected in product prices. More important, they must at least freeze subsidies, so that the people know that from now on they will have to share in the fate of world oil.

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