People's Democracy

Wanted: A ‘Desi’ Cost Accountant

Dipankar Mukherjee

After ignoring the concrete alternatives, suggested by the Left parties to avoid price hike in petrol and diesel, the government and the corporate media are engaged in justifying the price hike in diesel and petrol based on facts and figures which can be probably understood only by World Bank-trained economists—–not by those who deal with real available figures and accounts. Here are some samples:

The public sector oil marketing companies (OMCs) are incurring loss of Rs 40,000 crore which are to be equitably shared. The consumers’ share is Rs 5,000 crore only, through the price hike in diesel and petrol.

Fact: Rs 40,000 crore is  under-recoveries, i.e estimated loss of the public sector oil companies vis-à-vis selling cost of their products against global price. This is a notional figure and not actual. For example, under-recoveries for OMCs in 2004-2005  was Rs 19,910 crore. But can the same figure be treated as loss for the OMCs? No, because in 2004-2005, Profit After Tax for IOC alone was Rs 4,850 crore. It was Rs 7,004 crore in 2003-2004 when estimated under-recoveries was Rs 9,370 crore. There is no denying the fact that because of high crude price the public sector OMCs was going in red but figures should not be distorted to this extent. What are the actual losses this year suffered by these companies? Government figures speak for itself:

Losses in First Quarter 2005-06

                    (April – June 2005)

  IOC              -           Rs. 54 crore

  HPCL           -           Rs. 508 crore

  BPCL           -           Rs. 431 crore

  IBP               -           Rs. 234 crore

  Total             -           Rs. 1227 crore

Yes, these figures are alarming. But does it mean    notional losses have to be highlighted as actual losses?

The under-recoveries because of subsidy in pricing and high price of crude is being shared by all stake holders, i.e., government, oil companies and consumers.

Fact: No, the government, the public sector OMCs and consumers have shared the burden of high oil price. But the private oil companies, including the biggest one at Jamnagar, refining about 35 per cent of petroleum products in the country, have not shared  any burden.  On the contrary, they have been allowed to earn windfall profit  out of the existing pricing policy regime.

From an average of 4 to 5 dollars/barrel refining margin in 2001-2002, the private refining major of the country is now earning a refining margin of about 10-12 dollar/barrel, because of the present high global crude and product price, making windfall profits during last three years. Left parties in their note dated 18.5.2005 to the UPA government pointed out the same and asked for a cap on refining margin. This fact was glossed over by World Bank pensioners and penpushers. Now the French prime minister and EU finance minister have threatened such  refining companies  in their countries with a windfall tax on their extra profits. Could not the Indian government do the same?

Left’s suggestion to adjust the cess charged on crude oil produced by ONGC and Oil  India as per Oil Industry Development Act, 1974 for a price stabilisation fund is not possible as this is being used  for paying fertilizer subsidy.

Fact: The amount collected against OID Act, 1974 for the current year is Rs 5,400 crore, which is enough to neutralise the price hike of Rs 5,000 crore, sought to be raised through price hike. Firstly this is not only Left’s demand, but a recommendation given unanimously by the Standing Committee of Parliament on Petroleum comprising all political parties. When the OID Act was passed in parliament in 1974, there was no fertiliser subsidy in the country. Fertiliser subsidy was started in 1977–78. How could an  Act of 1974 levy a cess for paying fertiliser subsidy which was non-existent? This must be also an after thought of a World Bank specialist.

There should not be roll back on taxes or cess which would have its impact on the budgetary estimates, increasing fiscal deficit because of the revenue loss, etc, etc.

Fact: The Left parties had asked for withdrawal of additional road cess of 0.50 paise/litre imposed in this year’s budget. This amounts to Rs 1,500 crore for the remaining six months. They had  also asked the government to  forgo the   increased customs duty and  excise duty  amount on account of  increase  in crude price from 40 dollar/barrel in February 2005 to 70 dollar/barrel in   August 2005. This amount is roughly about  Rs 4,300 crore.  The  total amount is about  Rs 6,800 crore. This was not agreed on the plea of “revenue loss”. But what happened after last year’s  budget when a tax of 0.6 per cent was levied on stock market transactions? This was to fetch Rs 24,000 crore to the exchequer. There was a hue and cry from the share market brokers and the finance minister had to rush to Mumbai and   ultimately settled for 0.15 per cent tax. What was the loss of revenue against the budgetary estimate – Rs 18,000 crore.  Thus  a roll back is okay for 2 million share market participants. But it is fiscal blunder if increased customs duty and excise duty is annulled for the sake of poor and common man of the country. ‘Subsidy’ for Kerosene and LPG are serious fiscal aberration but export benefit of Rs. 2000 crore to the biggest private refiner is an ‘incentive’, not a subsidy.

It is surprising that even the prime minister also talks of loss of dividend and corporate tax from the public OMCs as justification for non-rationalisation of present tax structure as it may lead to revenue loss. It appears that World Bank economists have not appraised the prime minister about the rate of dividend thrust on public sector OMCs during last two-three years, which was as high as 100-150 per cent in some cases. Many of those, including the prime minister, whose heart bleeds for public sector OMCs, will definitely wonder if such a rate of dividend is given at a minimum by any private sector and can this rate be treated as a normal source of revenue? The following figures speak for itself.

Contribution to central exchequer by oil PSUs during last three years

                                                                                                      (Rs./crore)

                                            2001-2002          2002-2003            2003-2004

Corporate tax                          5791                 10,0249                10,0038

Dividend                                  3090                   5806                     6320

The dividend paid for the year 2004-2005 is Rs 6,888 crore. Both the corporate tax and dividend have doubled during last three years. If this year because of the global price hike, this goes to 2001-2002 level, will it be treated as revenue loss?

Any professional cost    accountant would be able to identify such gross incongruities in the facts and figures in government pricing and taxing policy in oil and petroleum sector, which is leading to high product price and cascading impact on inflation. But such analysis is not possible if you depend on World Bank-trained economic advisers who have only one focal point on how to help the private corporates and multinationals. The country is in crying need of some ‘desi’ cost accountants for plain-speaking rather than the pen-pushers of World Bank theories.