Curbing the invisible hand.

The name of Adam Smith generates intense respect for one and all in the academia. The father of economic theory who propounded the theories of free trade and the principle of the invisible hand. In The Wealth of Nations and other writings, Smith demonstrated that, in a free market, an individual pursuing his own self-interest tends to also promote the good of his community as a whole through a principle that he called “the invisible hand”. This principle has the basic conditions of free market and presence of rational individuals pursuing his own self-interest. But in a modern democratic society both of these conditions are compromised to some extent. The first condition of free market gets defeated in the various criss-cross of policies and permits inside and outside the country. And when we talk about rational individuals, not every one has an equal say in the affairs of economics. People who have more power, lead the way and when such beings choose not to act in a selfish manner, the equilibrium that we call economics can collapse.
The biggest and most powerful individual that we can imagine who controls lots of aspects of our life is the government that we choose. Yes, with its long list of bureaucrats and politicians we can imagine the sovereign government to be a pantagruelian monster which affects a significant portion of our life. And it is this monster that sometimes takes irrational decisions which can affect the state of economy and curb the invisible hand.
Take the recent case of increase in oil prices that is affecting the country and pulling down the much acclaimed growth story of India. The finance minister throws his hand in the air and says "great injustice" was being done to developing countries as a result of the volatility in oil prices.

While I would agree that oil prices are moving more north than expected, but there are a lot of things that the government can still do to check the impact of this volatility in oil prices. The prime thing being reduction in the cost of refining. If we compare the refining margins between the nationalized and private Indian refiners, we find a wide gap. The margins of private refiners is close to one and half times that of the government refiners like IOC, BPCL and HPCL. Shouldn't the government look into this anomaly? We are spending thousands of crores of taxpayers money into issuing oil bonds for the government owned oil companies. Can't we spend a few hundred crores into improving efficiency of these refineries.
Also, any refinery consumes approximately 6% of its total refining volume. When we say that the refining margin is low it means that the oil companies themselves consume a big chunk of the oil that they were supposed to supply to the office goer. This chunk has to be imported and this further increase the trade deficit. Both these instances leave a big hole in the fabric of economy. This hole needs to plugged by improving technology asap, or else the boat will sink.
Another options could be to also provide a level playing field to all the refiners in India by providing all of them equal subsidy irrespective of whether they are public or private. Private Indian refiners have one of the highest refining margins in the world. Therefore at a time when oil has become so costly why should we continue to waste so much of oil in refining it? Provide subsidy to all companies and let the best refiner win. The competition will ensure that the all refiners tighten their belt.
The government should raise the oil price at petrol pumps. This will trigger a effort among all citizens to save oil. Remember, by exhorting the virtues of austere living you cannot achieve results. It is only when you show them benefits can you make them do what you expect them to do.

Let common sense prevail !!