Should the Oil Pool Account really matter? - Views on News from Equitymaster

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Should the Oil Pool Account really matter?

Jun 19, 2000

There has been some news of the oil pool account (OPA) burgeoning by Rs 5 bn per month with crude oil prices remaining firm at $30/ barrel. Mr. Ram Naik, Union Minister for Petroleum & Natural Gas (MPNG) is probably burning the midnight oil to chalk out a way of reigning the deficit in the oil pool. What are the probable alternatives available with Mr. Naik?

  • Reduce the subsidies on petro-products namely, diesel, kerosene and cooking gas
  • Increase the prices of the rich mans fuel namely, petrol and Aviation Turbine Fuel (ATF), which already cross subsidise the other fuels.
  • Request the Ministry of Finance to reduce the duty component on crude and petroleum products.

But should the deficit really matter. The Ministry of Finance (MoF) is said to generate revenue of Rs 240 bn by way of duties on crude and petro-products. While the MPNG, which regulates the OPA states that the account is showing a deficit of Rs 75 bn and threatens to touch Rs 130 bn by the end of the year. Some simple arithmetic will reveal whether the deficit really exists.

(Rs bn)  
Revenue Generated 240
Deficit in OPA 130
Surplus 110

With the Ministries working as functional silos, each concerned with meeting their annual targets, Mr. Ram Naik has reason to worry as the deficit exists in the books of MPNG. Whereas Mr. Exchequer seems to be smiling all the way to the bank.

Over the past 50 years the Indian Government has made claims about its largesse to the weaker sections in an attempt to reduce the economic burden. But are the Ministries really concerned, for who bears the burden of surplus?

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