People's Democracy

PETROLEUM PRICING

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.

TRANSPARENT PRICING POLICY

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:

• The central excise on petrol rose from Rs 5.32 litre in 2000-01 to Rs 15.11 in 2006-07 (a rise of 300 per cent). For diesel the corresponding increase was from Rs 2.55 per litre to Rs 5.59 ( a rise of 200 per cent). The net result was that the contribution of the petroleum sector to central revenues rose from Rs 46,603 crore in 2001 to Rs 87,649 crore in 2005-06. 

• Had international crude oil prices remained at 2002 levels, revenue collections by centre would have been at least Rs 20,000 to Rs 25,000 crore lower. 

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.

• If the above was not enough as international crude prices soared, cess on indigenous crude produced by ONGC and OIL – the public sector oil producing companies that produce about 25 per cent of the total requirement – was first doubled from Rs 900 per tonne to Rs 1800 per tonne in March 2002 during the NDA regime and raised to Rs 2500 per tonne in 2006. This cess of about Rs 7500 crore per year is to be used as per the relevant act in 1974 for the purpose of development in petroleum sector but the same is being used as a revenue accrual by the finance ministry in the consolidated fund of India. 

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 exporters of petroleum products, mostly the private stand-alone refineries, do not have to pay any duties or taxes for the quantity exported. This amount known as duty draw back amounts to Rs 4000 crore to Rs 5000 crore approximately. 

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. 

WILL THE FM LISTEN?

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.