Economic Highlights

New Delhi, 20 May 2011

Petrol Price Hike

WHO IS GOVT FOOLING?

By Shivaji Sarkar

Inflation and the common man’s woes ironically keep adding to the Finance Ministry’s kitty. This time around, the Government is increasing petrol prices to fund its budgetary deficit. For there is nothing like under recovery. Instead, the country’s petroleum companies are earning huge profits. And the   Government has witnessed incremental growth in taxes with every increase in the prices of petroleum products. When calculated, the base price of petrol even after the recent Rs 5 raise is Rs 36.52. The rest Rs 27.15 as in Delhi is mere taxes.

Notably, despite the rise in international prices and a higher contribution to both the Central and State Government exchequer, eight petroleum companies – ONGC, Oil India, Indian Oil, HPCL, Bharat Petro, Chennai Petro, Numaligarh, Mangalore Petro -- have earned higher profits of Rs 32890 crore in 2009-10 against Rs 27189 crore in 2008-09. The projected profit in 2010-11 is Rs 19183 crore, but as in the past the companies earn much more than what is projected.

The ONGC earned the highest profit of Rs 16126.32 crore in 2008-09, Rs 19000 crore in 2009-10 and is expected to earn Rs 13096 crore in 2010-11. Indian Oil almost doubled its profit to Rs 5000 crore in 2009-10 from Rs 2949.55 crore a year ago. Oil India maintained its profit at Rs 2161.68 crore and Rs 2179.53 crore in the two years but is expected to increase it to Rs 2612.41 crore in 2010-11. Likewise, all other companies have maintained their profit margins and some such as Bharat Petro is projected to almost treble the profits in 2010-11 to Rs 2038 core from Rs 834.44 crore earned in 2009-10.

Indeed, it is a mystery why the Government is trying to create the hype of ‘under recoveries’. These are calculated at the highest international price – largely a notional price – and not at the actual price at which the companies purchase oil. The average price of the Indian basket of crude oil was $ 68.41 per barrel in 2009-10 but the under recoveries were calculated at $ 96.12 per barrel. This projected an ‘under recovery’ of Rs 29353 crore.

Importantly, while a budgetary support of Rs 12000 crore was announced it was never given. The oil companies were expected to bear a burden of Rs 8989 crore, which in actuality never existed.  

This apart, the petroleum ministry also fudged its profit figures to show that in the first half of the last financial year it earned a reduced profit of Rs 4934 crore. However, this is belied by the companies’ balance sheets. In 2010-11, the Government again projected an ‘under recovery’ of Rs 78,000 crore, calculated at an inflated purchase price pegged at over $ 120 per barrel, while the actual price was far lower.

The Government’s contention that oil companies are losing money on selling of petrol, diesel and cooking LPG gas is suspect. And, it is unfortunate that the Kirit Parekh committee appointed by the Government while giving its recommendations did not take into account the stark realities and unethical projections by the oil companies.

The reality is the Government earns phenomenally higher taxes with increase in international crude prices and unrealistically high domestic prices. Both the Central and State Governments together earned Rs 177091.12 crore as taxes in 2008-09, Rs 1326306.38 (provisional) in 2009-10 and are expected to earn Rs 1762786.96 crore (final figures yet to come may be higher) in 2010-11.

The Centre earned Rs 83753 crore, Rs 80000 (provisional) crore and Rs 79279 crore in the past three financial years. Whereas the State Governments got a higher share of Rs 93337 crore, Rs 81000 (provisional) crore and Rs 97057 crore during the same period. Importantly, taxes from petroleum products are contributing almost one-sixth of the total Central budget.

Let it also be known that the oil companies are not paid any subsidy on any count. Even they are funding the entire plan allocation year after year. Sadly, the Government has not even given a penny back from their contribution towards taxes.

The companies funded Rs 69457.79 crore for the Plan outlay of 2010-11. The Government claims it contributed Rs 36 crore to meet the initial expenditure towards setting of the Rajiv Gandhi Institute of Petroleum Technology at Rae Bareilly and Rs one crore for the plan scheme of providing LPG connection to BPL families.

On its part, the RBI in its latest monetary policy has almost paved the way for the Government’s unjustified action. It claims that the move to increase petroleum prices is necessary as the Government is required to finance its fiscal deficit!  The moot point is: why should the aam admi fund for the profligacy of the Government?

Undeniably, rise in petroleum prices makes all transportation expensive and all commodities become dearer. Worse, inflation is going through the roof as the Government has neither shown efficiency in controlling the prices nor shown the will to bring these down.

Besides, the Government’s logic that petrol is used by the rich is also a faulted argument. It is poor farmer or milk vendor or students who ride bikes or scooters, which are run on petrol. The rich drive diesel-fuelled Mercedes or Porsche or SUVs.

Official data reveals that while the consumption of petrol in the country ranges between 1.1 and 1.2 million tonnes a month that of diesel is nearly five times as much at 5.5 million tonnes. But while petrol prices have been raised by 32 per cent in eight successive hikes in the past 11 months, the Government has been shying away from raising the price of diesel, though supposedly the ‘under recoveries’ are stated to be higher at Rs 18 per litre.

Likewise, the Government now is even subsidising the operation of multi-billionaire telecom companies, which run their signal towers on diesel generators. These companies have earned thousands of crores as direct subsidies.

Clearly, the Government’s policy on petroleum prices and taxes needs a drastic change. It must put a curb on exports by private oil companies. It is difficult to comprehend why fuel spud at Krishna-Godavari basin and elsewhere is allowed to be sold abroad, while there is shortage of production in the country. It increases the bills of public sector oil companies and makes addition to the profit of private ones.

Not just this, but the Government also has to heavily cut on all kinds of duties levied by the Centre and States. If the country wants growth, fuel till such time an alternative is found has to be affordable. It cannot be made a handle to finance the fiscal deficit. --INFA

(Copyright, India News and Feature Alliance)