People's Democracy

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


No. 43

October 24, 2010





Oppose Further Burdens on People


WITH the recent hike in price of petrol by 72 paise per litre, the price of petrol has already been increased by Rs One per litre in a span of three weeks. By deregulating the petrol price, the oil companies have been given a free hand to increase the prices, on the plea of higher international crude price. The UPA-II government repeatedly spreads disinformation that the Left-supported United Front government of 1996-98 took the decision to deregulate the prices of petroleum products by dismantling the Administrative Price Mechanism (APM). What is left deliberately unsaid is that the Left had then opposed this move and under its pressure the United Front government announced the decision to dismantle the APM and simultaneously reduced the tax structure of duties on import of petroleum products to zero. However, this decision was implemented by the Vajpayee-led NDA government partially by dismantling APM but not reducing the taxes on petroleum products. The UPA-II government is carrying forward this legacy. This once again shows that as far as the neo-liberal economic policy trajectory is concerned, there is little difference between the Congress and the BJP. In the event, it is the aam admi that suffers.


When the UPA-II government came to power in May 2009, international crude price was 70 dollar per barrel and today the international crude oil price is 84 dollar/barrel, an increase of 12 dollar/barrel which means roughly Rs 3 per litre. But the petrol price in Delhi has gone up by Rs 7.44 per litre during this period. Moreover, the government is shirking its accountability for such a predatory non-transparent pricing tactics in the so called deregulated scenario. 


The aam admi already hit by the continuous food inflation is being now subjected to the further inflationary effects of high oil pricing. If the market determines the prices of petroleum products, as dictated by neoliberal agenda of UPA-II government, the extreme volatility in the price of crude oil in international market would be transferred to the domestic market and would affect the common man in different segments in different ways. Today if it is petrol, affecting millions of two-wheeler users, tomorrow it will be the turn of diesel and then LPG & Kerosene. The government has tasted blood in petrol pricing to cover up its own contribution to the hike in the pricing of petroleum products through disproportionate and irrational taxation. As repeatedly noted in these columns in the past, the government imposes high ad valorem taxes on imported crude oil which is refined domestically to produce various petroleum products like petrol, diesel etc. When international prices rise, so do government's revenues proportionately. While its revenues increase, the government hikes the prices in the name of international price rise. Thus, rather than return the increased revenues in the form of price reduction for the people, the government reaps a bonanza and imposes this burden on the people through higher  prices. It is now on course to expand the area of deregulation further to increase its revenues even more. In the process it also helps the private oil corporates to rake in super profits by following the policy of import parity pricing, despite the fact that the domestic refining costs are much lower than the international costs.

The fallacy spread by the government that the petroleum sector is subsidised is therefore, totally wrong because there is no net subsidy in the sector if a comprehensive view of cash flow from and to the sector is taken. Inflow in the form of tax revenue from the petroleum sector is approximately three times the outflow in the form of so called subsidies. The debate on taxation and subsidies on petroleum products in the mainstream media is misleading as it is couched in words like ‘under-recovery’ which does not imply loss or profit in the traditional sense. This is so because under-recoveries are calculated on the basis of import parity pricing and not on the basis of actual cost of production.

The heavy taxes imposed on the retail price of petroleum products in India make them far more expensive than that in most other countries in the world. If taxes and levies imposed on petroleum products are valued in purchasing power parity terms, retail petroleum product prices in India would be among the highest in the world. Between products, the level of taxation is completely disproportionate to end-use of the product. For petrol the level of taxation is extremely high whereas for Aviation Turbine Fuel (ATF), used in aircrafts, the excise duty is less than one-third of the same. This is lower even than diesel, a product of mass consumption. This anomaly illustrates the class bias in pricing petroleum products. Low taxes on ATF are nothing more than a subsidy to the affluent segments of the society.

The deceptive tactics of the government are clear. While justifying price hike and deregulation, the prime minister and petroleum minister were shedding tears on the poor financial health of public sector Oil Marketing Companies (OMC). Now the same government has chosen one of these 'poor' OMCs viz IOC for disinvesting government shares worth a massive Rs 9000 crore to cover-up its revenue deficit. Similarly, the government collects Rs 8,500 crore approximately as cess from public sector oil producing companies like ONGC and Oil India. The government has ignored repeated recommendations of the parliamentary committee to form a price stabilisation fund with this cess to protect the aam admi from the vagaries of volatile international crude price rather than using this to bolster government revenues.

The government’s game of deception must be exposed. The price and tax anarchy through deregulation of petroleum pricing must end. Popular public mobilisations must be strengthened to force the government to stop treating the oil sector as a 'milch cow' to bolster its revenues at the expense of the aam admi.