People's Democracy

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


No. 08

February 25, 2007



Wanted A Transparent Policy, Not Image Building Exercises


Dipankar Mukherjee


UPA chairperson Sonia Gandhi must be feeling embarrassed the way Murli Deora makes it a habit to rope in her name each time he announces any reduction in fuel prices. In the process Deora changes his own public stand, remains oblivious to the impact of his dilatory tactics on the common man who deserve the relief much before Deora times his decision to posture for an image building exercise of his leader. Embarrassment to the UPA chairperson is obvious when the job of a marketing manager is assigned to someone who has to take macro policy decisions. In the case of petroleum pricing such policy change is a crying need, a point which has been harped on time and again by the Left parties. There has to be a transparent policy of petroleum pricing rather than reduction of a rupee or two here and there based on some erroneous premises without touching the main issue of reduction in taxes.




The first and foremost thing that a consumer must know is the actual break up of the cost components leading to the retail price. It is the trend in globalised India today to talk in terms of dollars per barrel and not in terms of rupees per litre. Let the government specify global crude price in rupees per litre rather than dollars per barrel. If the crude price today is 55 US dollars per barrel, in Indian currency it is Rs 15-16 per litre. The crude is refined in Indian refineries for getting products like petrol, diesel, kerosene, LPG, etc. The average refining cost in the country today is roughly 40-50 paise per litre. This being the case, public transparency demands that the government and the oil companies – both private and public – should come out with detailed break up of the retail cost. The break up will clearly show that the remaining amount of the retail cost of diesel and petrol is only taxes/duties. When the price was raised in June 2006, Murli Deora made big public relations exercise to highlight sale taxes levied by state governments to win petty political points. But what he did not reveal not only to the people of the country but probably also to the UPA chairperson are the following facts:



This revenue bonanza was because the taxes and duties have been continuing with ad valorem structure, which increases in tandem with rise in international crude oil prices. The taxes are being charged on the value of the crude and petroleum products and not on the volume as was prevalent before 1994. 


The Left parties had been demanding right from day one that the ad valorem structure should be replaced by specific tax based on the volume, more precisely in Rs/litre. This is the first and foremost policy change which must be incorporated in the coming budget.


The Left parties had demanded either the cess should be removed or this money should be utilised as price stabilisation fund to take care of the fluctuations of global crude oil price by the government. 


The Left parties had demanded that the duty draw back incentive should be reviewed as such bonanza is not necessary for the private exporters who are making enough profits due to very high global prices. 




Incidentally the above positions taken by the Left viz., reduction in excise duty, change of taxing pattern from ad valorem to specific, formation of a price stabilisation fund, and review of duty draw back were re-echoed in successive reports of Parliamentary Standing Committee of Petroleum from 2004-05 onwards. The petroleum ministry had also accepted these recommendations in principle. As a matter of fact Deora requested finance minister to reduce excise duty in August 2006. But the finance ministry had all along been refusing to implement any of the policy changes in order to maintain what it called as “revenue neutrality”, which in other words means tinkering with tax structure here and there, thus putting more pressure on the public sector oil marketing companies and burdening the common man with more taxes in tandem with global oil price hike. Deora knows that reduction of price by Rs 2 here and Rs 1 there when the global oil prices have come down does not recede the inflationary expectations because the global price may go up again in future. Inflationary expectations are worse than inflation itself. The policy changes in taxation, as demanded by the Left parties and standing committee of parliament, have to be made in the forthcoming budget. Then only people of the country can feel assured that the UPA government means business as far as inflation is concerned. Image building is done by policies and not by mere acts of feudal benevolence. Or is it that Murali bhai listens to UPA chairperson but Thiru Chidambaram does not. That is also no way to build up the image.