Opinion

FLARE UP IN FUEL PRICES AND THE WAY FORWARD

G.Srinivasan

Indian users of auto fuels—whether individuals owning vehicles and paying for the fuels through their pockets or the general public using public transport such as buses, taxies, autos or mini vans enjoying the economies of scales in view of their larger numbers and the authorities’ pronounced bias to subsidize public transport are all in the same boats, bemoaning the daily spurt in fuel prices. It is an open secret that prices of petrol and diesel have been made market-determined by the Government effective from June 28, 2010 and October 19, 2014 respectively. In the intervening spell of eight years, the public sector oil marketing companies (OMCs) took relevant pricing decisions on petrol and diesel in consonance with global product prices and other market conditions at least on paper.

It is also a recorded fact that in the eight years that went by, global crude price gyrations swung from one extreme to another as could be attested from the fact that the average price of Indian basket of crude oil during February 2014, June 2016 and May 2018 ruled 106.19 dollars per barrel, 46.96 dollars per barrel and 75.31 dollars per barrel respectively. Since May this year, the prices have been going only up because of the orchestrated attempts by oil cartels to cash in on the demand for oil in the wake of incipient recovery of the global economy. But even as India has been loudly proclaiming that it has dismantled administered pricing mechanism (APM) to prove its reformist credentials with the global community on products pricing, the government has seldom shown any willingness to let its control slip from the oil booty as the stakes involved in it are quite substantive and substantial.

So taxes, levied by both the Centre and the State governments, always hold the key in making the end-price stiff for the consumers, whether the imported oil prices are on a free fall as it supervened a couple of years ago or are on the uptick as they are now, making no material difference to the man in the street! It is also an eye-opener that in a written reply to a query in the Lok Sabha on July 23, 2018, the Minister of Petroleum & Natural Gas, Dharmendra Pradhan admitted that price before taxes and dealer commission in a litre of petrol is 36.68 rupees and for diesel this is 39.77 rupees per litre. On this, excise duty is added to the tune of 19.48 rupees per litre on petrol and 15.33 rupees per litre on diesel, while the states levy value-added tax (including VAT on dealer commission) of 16.34 per litre on petrol and 10.07 rupees per litre on diesel, making the retail selling price of petrol at 76.84 rupees per litre and 68.47 rupees per litre of diesel as on July 16, 2017 as per IOCL at Delhi. But since July this year, the price of both petrol and diesel began rising every day to the discomfort of users and in cities like Mumbai, Kolkata and Chennai, they were going beyond the means of ordinary people, resulting in street protests by public.

As can be seen from the pricing structure of oil/gas, the tax components of both excise/State VATs combined command a hefty component and unlike other neighboring nations as Nepal, Bhutan, Myanmar and Pakistan, this has not been the case in view of the geographically diminished size of these countries and the limited capacity of the people to bear any burden owing to taxes on fuel. But in a country of continental size like ours, both States and the Centre even as they hail competitive federalism indulge in competitive rate raising to the detriment of final consumers who have no recourse to escape from it. Probably the introduction of GST from July 1, 2017 might help mend matters. Article 279A (5) of the Constitution provides that Goods and Services Tax Council can recommend the date on which goods and services tax shall be levied on petroleum crude, high speed diesel, motor spirit, natural gas and aviation turbine fuel. Thus, while petroleum products are constitutionally included under GST, the date on which GST shall be levied on such goods shall be as per the decision of the GST Council which has representatives of finance ministers of States and UTs with the Union Finance Minister as Chairman. But this is a political question as States do not like to be deprived of a major source of revenue and unless a reasonable compromise formula is hammered out between the Centre and the States as a national interest of the highest priority, the fleecing of ordinary consumers on fuels would persist.

Interestingly, the government has announced the cut in Central excise duty on petrol and diesel by two rupees per litre effective from October 2017 and its appeal to the state governments to follow suit was responded to only by five State governments and one union territory which cut the VAT rate on petrol and diesel . It again unveiled another announcement on October 4 this year by which the excise duty on petrol and diesel was cut by the Centre by 2.50 rupees per litre with the Centre bearing 1.50 rupees and the oil marketing companies (OMCs) the balance one rupee in a litre in order to mollify the hapless consumers. The central government which had been firm in raising excise duty in as many times as it could when the global crude prices were on the decline during the last couple of years could no longer resort to this route when the prices began soaring in recent months, putting into trouble every user of this vital input for mobility!

As the Narendra Modi government is in the last lap of a few months of governance before it must squarely face the electorate for a renewal of mandate, the headwinds in the economic landscape threaten to be spoilsports. With inflation rearing its ugly head rendering the lives of aam adhmi a lot difficult to make both ends meet, there are also other dismal figures in the form of decline in exports in the month of September, despite the steep depreciation of the rupee and high cost of imported crude making the balance of trade adverse. There is every pointer to contend that both the country’s fiscal deficit as also the current account deficit are inching up, posing a threat to the financial stability and to the macro-economic fundamentals. India may be the fastest growing economy as per the estimation of leading international institutions such as the IMF or the World Bank or the regional development bank such as the Manila- based Asian Development Bank (ADB). But challenges to maintain the tempo of growth are many.

For the Centre which is getting more than two lakhs crores of rupees from excise levy on fuels, a sacrifice of 21,000 crore of rupees may not materially alter its fiscal position unlike the States which do not have the luxury of shifting taxes to other items to make up for the cut in VAT on fuels. Hence they sit over the appeal lest they should lose pampering their people with pet free schemes to get their valuable votes to maintain power for ever—be they farm loan waiver, free distribution of goats, cycles or grinders or any other trinkets to make them feel they get governed by a more caring government!

Prime Minister Narendra Modi was right in appealing at a gathering of prominent oil ministers in New Delhi in mid-October to oil producers to reduce the cost of energy in order to aid the global economy in its ongoing efforts to recover. He was equally forthright in pleading for a review of payment terms, demanding the partial use of the rupee instead of the US dollar to pay for oil with a view to easing the excruciating pains in the wake of the strengthening of the greenback. But these pious appeals do not help unless India also made its own efforts to diversify its sources of energy, conserve energy and price its derivatives to its scarcity value so that no waste or willful misuse of precious energy is made in the country. But that demands a national movement involving all stakeholders.

To boot, diplomatically India has been pressing hard for responsible and reasonable pricing at several global events and as the world’s third largest oil consumer Pradhan appealed to the Organization of Petroleum Exporting Countries (OPEC) in New Delhi October 17 at the annual institutional dialogue to move to responsible pricing of oil and gas. Incidentally, of the 83 per cent of India’s imported crude oil needs, a major chunk of more than 85 per cent is accounted for by OPEC members, while about 80 per cent of gas imports come from these nations. But in a world where resources are scarce and those who ride on it command premium do not incline to show clemency as they go by commercial considerations to reap the oil/gas bonanza to further their own development. as, such the nation remains on a tightrope walk as far as its energy management issue goes and unless economics trumps politics the way forward to sail safely in the choppy waters is fraught.

*Former, Deputy Editor, The Hindu Group and a freelance economic journalist.

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