People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 21

May 21, 2006


Simply Unacceptable


THE UPA government is currently bracing itself for another round of hike in the prices of petroleum products.  This is simply unacceptable.  Particularly at a time when the prices of essential commodities are on the rise, such a hike will lead to a cascading inflationary spiral.  This will only mount greater miseries on the people. 


The government’s argument is based on the fact that the international prices of crude oil have crossed the $70 mark per barrel in May 2006. These prices were around $32 when the UPA assumed office. The last hike in prices came in September 2005 when the international price crossed $60. If the domestic prices were to be raised accordingly, then the oil companies would be earning Rs 73,512 crore. Since the prices have not been hiked, this shortfall is termed as `under recovery’ of the oil companies. Under recoveries are not actual losses. These are notional figures of what companies could have earned, if the prices were raised accordingly. Hence, to use these figures to buttress the arguments for a price hike is untenable.


For the same year, 2005-06, the central government tax revenue from the oil sector amounts to Rs 77,800 crore. This is clearly higher than the total quantum of under recoveries of the oil companies. If we were to add the revenues that accrue to the state government, this would be an additional Rs 48,800 crores. In other words, the oil sector contributes Rs 1,26,600 crore to governments. Such a high level of taxation on an essential commodity that is imported cannot be justified by any means. Oil imports are akin to imports of foodgrains under famine conditions. These are essential to feed our people. Likewise oil imports are essential to feed our economy. The government cannot continue to use the oil sector as the milch cow to finance its expenditures.


The argument that without these revenues, the government’s ability to pursue the social welfare commitments of the Common Minimum Programme would be curtailed is tenuous. The government’s revenue from the oil sector has gone up from Rs 96,000 crore in 2002-03 to Rs 1,26,000 crore in 2005-06, i.e., an increase of Rs 30,000 crore. In the meanwhile, the government’s subsidies on PDS kerosene and domestic gas cylinder reduced from Rs 11,140 crore in 2001-02 to about Rs 3,000 crore. In addition to revenue gains, the government has saved Rs 8,000 crore in its subsidies. Further, since the government taxes are ad valorem, the government earns more as the international prices rise. If international prices doubled, then the government can half its tax rates without, in any way, affecting its budgetary projections. Thus, therefore, the rationalisation of the tax structure must be undertaken before introducing any price hike. 


Further, the government collects regularly a cess in the name of developing the oil industry for which it had set up the Oil Industry Development Board in 1975. Till date over Rs 60,000 crore have been collected. Of this, only Rs 902 crore has been given to the oil sector. If this money is returned to the oil sector, then there will not be any need to hike the oil prices to meet the rise in the international oil prices.


Further, a lot of work needs to be done to rationalise the process of pricing of oil products in the country. For instance, crude cost of $70 a barrel means roughly Rs 20 a litre. It is necessary to understand why this escalates to Rs 45 for litre for petrol and Rs 32 per litre for diesel. All such issues will have to be first considered before passing the burden on to the people. 


In order to make up for the under recoveries, the government has calculated that it needs to increase the price of petrol by Rs 9.33; diesel by Rs 10.43; kerosene by Rs 17.16 and gas cylinder by Rs 114.45. 


Such a cruel imposition of burdens on the people is simply not acceptable. 


If the UPA government is true to its commitments to the aam admi, then it should desist from undertaking another price hike. The CPI(M) hopes the UPA government undertakes such an exercise of considering other options. If otherwise, the CPI(M) will oppose any such price hike that will impose further burdens on the people.