Daily Times

As if it was a game of hide and seek, the government has made it a habit of withdrawing or partially withdrawing hikes in prices of petroleum oil and lubricants (POL) after first announcing an increase. The government withdrew the price hike announced in December as part of the reconciliation plan with PML-N, which involved the implementation of Mian Nawaz Sharif’s10-point agenda. Then again, last month, it introduced a hefty increase to align the domestic prices with international prices, but made a partial withdrawal in the aftermath of protests by coalition as well as opposition parties. Much to the dismay of ordinary citizens, in its monthly review of March, the Oil and Gas Regulatory Authority (OGRA) has again raised the prices of petroleum products by 10 percent on Thursday. While the industrial and traders’ community as well as the general public have genuine reasons to reject this hike, political parties have found a popular cause to agitate against the government.

Facing the Treasury and Opposition senators’ criticism and walk out from the upper house of parliament against this measure, the prime minister directed the federal Finance Minister Dr Abdul Hafeez Sheikh to take parliamentary parties into confidence and devise a strategy to give relief to the poor. Although the prime minister tried to present OGRA’s decisions as autonomous of government influence, the fact that the government can direct OGRA to withdraw the hike belies this claim. OGRA’s price mechanism links the domestic prices to international prices and the increase in international prices owing to the political crisis in the Middle East has mandated the increase in domestic prices, but this is not the whole truth. Part of the problem is that the government earns substantial revenues by taxing various stages of refining and sale of petroleum products. For an economy that relies heavily on indirect taxes for revenues and invests very little on development, this is perhaps one of the very few choices available to it for raising revenues in the current circumstances. Thus Prime Minister Gilani’s reference to the Rs 35 billion oil subsidy in fact means the government would be foregoing part of these revenues.

The further slashing of the revenues of an already cash-strapped government is a cause for concern, but this should be compared with the burden on the masses due to not only the hike in prices of petroleum products, but also a cumulative sympathetic increase in prices of all other commodities and services, due to our heavy dependence on petroleum for meeting our energy needs. Already the transporters have increased fares in Punjab, while those in Karachi are threatening a hefty increase. The price of CNG and furnace oil has also risen after the POL increase. Likewise, there is going to be an impact on all other services and commodities. Can the economy absorb this impact? The government must strike a balance between its need for revenues and keeping the economy and masses afloat and not blithely ignore the effect of POL price hikes on various sectors of the economy and consumers. Compare our situation with India, which has decided not to increase POL prices in the aftermath of the Middle East crisis. Being a strong economy, India does not heavily tax this sector and has the capacity to absorb the jolts dealt by the international market. Being a weak economy, perhaps we cannot escape this impact entirely, but our decisions should be guided by realistic considerations where all the pros and cons are analysed rather than just looking at the compulsion to generate income to finance the yawning fiscal deficit. *