Comprehension : Comprehension

Q 355 / 466

UPSC CSE Prelims 2014

It is easy for the government to control state-owned companies through nods and winks. So, what really needs to be done as a first step is to be done as a first step is to put petrol pricing on a transparent formula—if the price of crude is x and the exchange rate y, then every month or fortnight, the government announces a maximum price of petrol, which anybody can work out from the x and y. The rule has to be worked out to make sure that the oil-marketing companies can, in general, cover their costs. This will mean that it one company can innovate and cut costs, it will make greater profits. Hence, firms will be more prone to innovate and be efficient under this system. Once the rule is announced, there should be no interference by the government. If this is done for a while, private companies will re-enter this market. And once a sufficient number of them are in the fray, we can remove the rule-based pricing and leave it truly to the market (subject to, of course, the usual regulations of anti-trust and other competition laws).

Consider the following statements:
According to the passage, private oil companies re-enter the oil-producing market.

  1. A transparent rule-based petrol pricing exists.
  2. There is no government interference in the oil producing market.
  3. Subsidies are given by the government.
  4. Regulations of anti-trust are removed.

Which of the statements given above are correct?

EXPLANATION

Correct Option (A)

According to the passage, the re-entry of private oil companies into the market is contingent upon two primary conditions:

  • A transparent rule-based petrol pricing exists: The passage explicitly states that establishing a transparent formula for petrol pricing, where the maximum price can be derived from crude price (x) and exchange rate (y), is the essential "first step" to attract private players.
  • There is no government interference in the oil producing market: The passage emphasizes that once the transparent pricing rule is announced, there should be "no interference by the government." This autonomy is presented as a crucial factor for firms to innovate, become efficient, and for private companies to re-enter.

Therefore, statements 1 and 2 accurately reflect the conditions mentioned in the passage for private oil companies to re-enter the market.

Incorrect Options:

  • Statement 3 (Subsidies are given by the government): The passage does not mention government subsidies as an incentive or a condition for private oil companies to re-enter the market. The focus is entirely on market transparency and non-interference.
  • Statement 4 (Regulations of anti-trust are removed): The passage explicitly states the opposite. It indicates that even when rule-based pricing is eventually removed and the market is left to operate freely, it would still be "subject to, of course, the usual regulations of anti-trust and other competition laws." This implies that such regulations are to be maintained, not removed.