Reforms, once embraced as the main spirit of governance by the troika of Manmohan Singh, Palaniappan Chidambaram and Montek Singh Ahluwalia, appear to have been cast aside and completely forgotten. Who cares about dismantling the administered pricing regime for the oil sector when more important reform goals for instance, of reducing the fiscal deficit have ceased to be the government's priority? 

Many sensible recommendations to strengthen the petroleum product pricing regime were made by at least two recent government committees one headed by Rajya Sabha member C. Rangarajan and the other by former cabinet secretary B.K. Chaturvedi.

Nobody in the government talked about these recommendations when the international crude oil prices ruled at around $140 a barrel. It was widely acknowledged that implementing them when the crude oil prices were that high would have added fuel to the fire of inflation and made the government more unpopular.

But the irony is that now that the international crude oil prices have dropped by over 70 per cent, nobody in the government is talking about reviving the recommendations of these two committees and considering them for implementation.

Instead, the UPA government has opted for an easy way out that is populist and steers clear of any controversy. What has been overlooked is the fact that international crude oil prices will not remain at these current moderate levels for long.

As long as they remain moderate, the government should use that as an opportunity to put in place a transparent pricing system that reflects the actual cost of the petroleum products. It will be easier to implement the new system now than when the crude oil prices start rising.

The Vajpayee government too had got a similar opportunity, but its petroleum minister Ram Naik did not take full advantage of it.

The UPA government and its petroleum minister Murli Deora should learn from the Vajpayee government's mistake. Politically, it may be too complicated and almost impossible for the UPA government to put in place an elaborate package to reform the petroleum product price regime at present.

After all, general elections are round the corner and it is not reforms but hand-outs that will fetch greater returns. Yet, there could be a prudent approach to the oil pricing issue and a pragmatic method that could be populist and at the same time do the least damage to the oil economy. 

That strategy would be to reduce the prices of only petrol and diesel, and at the same time raise the prices of LPG and kerosene. The current under-recovery on account of LPG is almost half its selling price and the under-recovery on account of kerosene is more than double its current selling price.

The subsidy levels that under-recoveries of such magnitude require are huge and unsustainable. Therefore, raising the prices of LPG and kerosene would reduce the subsidy burden and also prevent the diversion of kerosene and its adulteration with diesel.

At the same time, a reduction in petrol and diesel prices would offset the impact of a rise in kerosene and LPG prices on inflation.

The petroleum product pricing regime would still need to be reformed. But at least the under-recoveries on account of LPG and kerosene would become less unsustainable.