Oil slick

On the face of it, the government has a point in not asking Reliance Industries to share the Rs 9,500-odd crore petroleum subsidy burden since the company is privately owned, and there is no reason why non-government shareholders should be asked to pay for what is essentially a handout from the government to whom it considers 'aam aadmi'.

Indeed, in a situation where the government is trying to attract more investment into the sector, asking private players to chip in will only frighten them off.

Today, it is oil subsidies, tomorrow it could well be food subsidies that need to be distributed across the private food traders.

While that argument may have some element of logic, the problem is the logic breaks down since the beasts of burden, in this case the oil PSUs, aren't exactly wholly owned by the government either.

In the case of companies like HPCL, the public shareholding both within and outside the country is 49 per cent and it is well over 40 in the case of BPCL.

And while the shareholding in PSUs like IOC and ONGC is much lower, it remains significant. Surely if Reliance's private shareholders have rights, the private shareholders of HPCL and other oil PSUs have rights too?

Indeed, it is not clear as to why no shareholders have gone to court over the matter since the issue of charging market prices for petroleum products was settled by a Cabinet decision way back during the United Front days.

Indeed, a parallel could be made from the telecom sector where the government, equally ill-advisedly, wants to keep telecom costs down for a section of the population, and so gives the public sector Bharat Sanchar Nigam Limited around Rs 5,500 crore of outright cash support each year, but not from the budget, but through a cess of sorts collected from private players - while it is unfair, at least the burden is shared equally across all players unlike in the current case where only the PSUs have to bear the burden.

Curiously, the Left parties which find it so easy to get exercised about non-issues have kept a stoic silence on this issue.

The only fair solution for now, since the government does not wish to charge market prices to consumers, is to compensate the oil PSUs for their burden either directly through the budget or through lower dividend payouts on their shareholdings in these companies.

Ultimately, however, there is no substitute for allowing prices to be fully market-determined. Even if Reliance may not have to shoulder the cost of the subsidy directly, it has to offer a discount to PSUs for the sale of petroleum products, which is an indirect way of shouldering a part of the subsidy burden.

Moreover, the current situation cannot last for too long since, once Reliance is able to build up its marketing network over the next couple of years, it will find it is getting no customers since everyone will prefer to buy from the PSU network which offers petrol and diesel at below-market prices.

That is, even Reliance needs the government to move to market prices if it is to make a success of its marketing network.

In which case, the sooner the government moves towards free-pricing and gives consumers time to get used to this, the better it will be.