Petroleum Pricing Policy: A Viable Alternative

This article critically evaluates the government's pricing policy for petroleum products in India. It looks carefully at the notion of "under-recoveries" oil companies and attempts to compare it with their profits under an alternative pricing regime. It concludes that under the suggested pricing structure the surplus generated in the oil sector will be sufficiently large to wipe out the much advertised fiscal deficit sustained by the government on account of oil subsidies – without raising the price of the essential oil products. The analysis is carried out with reference to 2011-12 data.