Economic Highlights

New Delhi, 28 May 2018

Petro Price Bogey

OVERSTATED, CURB PROFITS

By Shivaji Sarkar

Fuel is not only scarce, but expensive. More the pricey it is, higher is the profits of the oil companies. Taxing fuel to bleed users is anti-development, inflationary and thaws growth.

This is the harsh reality. Even at $80 a barrel -- 150 litres -- the purchase price is less than Rs 35 a litre. Indian basket costs less than that. So the bogey of the pinch is overstated.

International prices are difficult to contain. It is the oil lobby that manipulates the prices. The US, earlier a controller of prices, has itself become one of the price manipulators. With its shale oil, though it is facing production problems now, it has also become an oil economy.

The US is targeting Asian economies by aiming sanctions against Iran on the pretext of checking its nuclear energy projects. Even the Barak Obama administration prevented India from using Iran oil to hike international prices. It may be noted that US companies dominate the international oil market.

Iran oil is one of the best, with low sulphur content. India with rupee deal and swap arrangement, mainly being managed through the public sector HP, was able to save forex and had other benefits. The Iran sanctions puts pressure on India to source fuel in dollar terms and affects the rupee further. It hits its development goals.

India needs to better ties with Russia, which is also targeted for sanctions by the Donald Trump administration for maintaining its diminishing power. Prime Minister Narendra Modi visited Sochi to revive ties with Russian President Vladimir Putin. Even the EU is divided, as recently German Chancellor Angela Merkel indicated during her meet with Putin on Iran sanctions.

International situation will take time to change. Meanwhile, India can take steps to make fuel affordable. The solution suggested by “experts” to tax it to fill the government coffers and “check” usage is obsolete. Neither it has reduced consumption nor did it help the government earn more.

The government itself is the victim of its taxation policy. It is the highest spender and fuel tax payer. The policy helps none but being inflationary. Further, the government is apparently not being given the correct advice. The States too feel that they could earn a lot from high taxes on oil. Someone even, not wisely, suggested raising diesel prices to bring it at par with petrol. It is a falsified argument. Petrol and diesel prices are fixed as per refining cost. Obviously the cost of refining is less for diesel. So it should have less price -- almost half that of petrol.

But oil companies misguide and use environment lobbies to price and tax diesel more “branding it with having higher pollutants”. This only rakes up their profits and makes transport, agricultural production and other people–oriented activities expensive.

It needs to be probed whether the environment lobbies have some other aim or not. Are they in league with some not-so-friendly powers and oil lobbies to keep India under-developed through such machinations? Their arguments on diesel and scrapping diesel vehicles need to be junked.

Diesel is as pollutant as any other fuel.  Pricing it higher raises cost of living at all levels from agriculture to transport, industry and manufacturing.

The nation has to have a relook at its policies. One instance would suffice. Indian Oil profits increased to over Rs 5400 crore in the last quarter alone. The cumulative profit rises to over Rs 20,000 crore. Indian Oil has also announced higher dividend at Rs 2 per share and many benefits for its directors and employees. So it is with all public sector oil marketing companies (OMC).

A country that is suffering difficult situation and its development schemes are hit, should really be victim of the OMC machinations? It calls for a relook at the daily oil pricing. The OMCs are acting on the nation’s fear psychosis and it should be considered unholy if not criminal. The public sector companies should have profit no doubt, but it should not be so phenomenal that the country bleeds and its rupee plunges further.

The government, which ultimately faces the people’s wrath, must act prudently to curb the profiteering spree of OMCs. It may even consider ordering a probe.

Besides, the taxation issue is equally vexatious. In 2014, Rs 9.48 was the central tax on petrol. It has risen to Rs 19.48. Diesel had Rs 3.56 as excise duty. Now it is Rs 15.33. The States have minimum VAT of 16.62 per cent and the maximum of 39.48 (Mumbai) per cent. In 25 States the average rates are between 20 and 35.

Since 2014, the Centre and States have collected Rs 14,67,462 crore as taxes -- an average of Rs 3.7 lakh crore a year. The Centre’s share is Rs 8,06,715 crore and States have got Rs 6,61,653 crore. This looks good. But the impact of it on production and inflation is not estimated. It leads to cost cut at all levels and companies go through a severe crunch even as they face investment issues.

The government itself, both Centre and States, is the worst victim of such inflation as it increases its administrative expenditure. All aspects from agriculture, industry, manufacturing, transport and overall cost of living rises.

What should the government do? It has to fix the petrol price at the level of international crude purchase price at around Rs 35 a litre and do away with multiple taxes. For diesel, the price has to be fixed at the refining end, which is less than Rs 25. Many other byproducts have also to be priced in a similar way.

Now about the taxes. The GST is the great leveler. Even at 28 per cent GST it would be around Rs 9 per litre as the maximum on petrol -- total retail price Rs 44. For diesel the selling price would not be more Rs 32.

Yes, there could be notional cash loss to States and the Centre. But the governments at all levels, being highest fuel guzzler, would be saving at least Rs 1 lakh crore on fuel price outgo. Even with GST, governments would earn over another Rs 1.7 lakh crore.

The gainer would be the nation with lower living costs. Growth, which has been pulled down by high price, would be accelerated. There would be overall happiness, rise in production, jobs and stronger rupee. Finally, that would give a good name to the country, richer experience and the ushering in of a new era with kudos for Prime Minister Modi’s vision.---INFA

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