People's Democracy

Editorial

HIKE IN PETRO PRICE

A Gigantic Fraud

AS this edition of People’s Democracy reaches our readers, the countrywide protest against the huge hike in the price of petrol called by the four Left parties would have taken place.  The UPA-2 government has, however, turned a deaf ear to these massive protests, hartals, rasta rokos etc and has ruled out any rollback of this price hike notwithstanding feeble protests by some allies.  The government continues to justify the hike, both as being necessary in order to meet the so-called massive losses of the oil companies and for improving the fiscal condition of the economy by tightening our belt as the PM said.  More on this later.

The oil companies, we are informed, are reeling under huge ‘under recoveries’ of Rs 1,71,140 crores in 2011-12. The country cannot afford such a huge loss, we are told.  What are these under recoveries?  They are the difference between the retail price of petroleum products and its import price.  It is, hence, notional in nature because the import prices include duties, insurance, freight and other levies.  These are not paid by the Indian companies since what we import is crude oil that is processed in India to produce petrol, diesel, kerosene etc. Further, the under recovery figures that the oil companies cry hoarse about are not audited by statutory auditors. Instead of linking the price of the petroleum product to the cost of imported crude plus domestic refining cost, the international price is taken as a benchmark. 

Prior to the nationalisation of foreign oil companies, petroleum products were sold, in India, by companies like ESSO, Caltex, Burma Shell etc. Since these were multinational corporations, they used to base their calculations on international prices. However, after nationalisation, the sale price of domestic products should logically have been based on the import price of crude oil plus the domestic refining cost.  The fact that international prices continue to be used as a benchmark is what produces these exaggerated notional losses.  This is the gigantic fraud. 

This fraud is reflected in an answer to a question in the Lok Sabha. The petroleum minister gave details of profit after paying tax of public sector oil companies. In 2010-11, the ONGC made a profit of Rs 18,924 crores, IOC – Rs 7,445, BPCL – Rs 1,547, HPCL – Rs 1,539 etc.  Where is the loss?  Whom is this UPA-2 government fooling by talking of ‘under recoveries’.

Let us now take the question of subsidies.  The parliamentary standing committee report shows that the taxes and duties on petroleum products yielded the central government revenue of Rs 1,36,497 crores in 2010-11. Additionally the state governments earned Rs 88,997 crores. Thus totaling a whopping combined revenue earnings of centre and states of Rs 2,25,494 crores.  The total subsidies paid by the central government to the oil companies, including the issuance of oil Bonds, amounted to Rs 43,926 crores.  After all the subsidies are met, the central government is still  left with earnings of a huge amount of Rs 92,571 crores.  Who is subsidising whom, Mr Prime Minister?  Who needs to tighten the belt? 

As against the international price of Rs 23.17 per litre of petrol in 2009-10, we, in India, (average price of all four metros) paid Rs 47.93. Likewise, against Rs 22.7 for diesel, we paid Rs 38.1, against Rs 177.14 for a gas cylinder, we paid Rs 310.35 (Basic Statistics, Ministry of Petroleum, 2009-10).  It is because of this huge amount of taxation on petroleum products that the people pay an unbelievably high price and, therefore, subsidise the government. That is why, in 2008 for instance, the price of a litre of petrol in USA was Rs 17.57 while in Delhi, it was Rs 50.65!

These extra burdens on the people are being mounted to improve our economy’s fiscal health.  The country is being told that our high fiscal deficit, scaring away foreign investors needs urgent reduction. Consider this: fiscal deficit now stands at Rs 5,21,980 crores or 5.9 per cent of GDP.  The budget documents show that in the same year, the total tax revenue foregone (i.e., voluntarily not collected by the government) amounts to Rs 5,29,432 crores, i.e., nearly Rs Eight thousand crores more!

These tax concessions, like the bailout packages in the West, are justified on the grounds of providing ‘stimulus’ for economic growth.  The reduction of fiscal deficit, thus, has to be borne by the poor through austerity measures.  ‘Tighten the belt’, the PM has said.  This process has begun with the massive hike in the price of petrol. There appears little concern that this could well lead to a cascading inflationary spiral over and above the already escalating rise in prices.  Remember, crores of two-wheelers consume petrol. 

Summing up the discussions on the budget and moving the Finance Bill for adoption, the finance minister gave a stirring call for ‘austerity’ in the face of  bad economic times. The growth rate is declining, the index of industrial production, particularly manufacturing, is sharply declining, the rupee is in a tailspin, Air India is grounded, prices are spiraling etc etc – gloomy, indeed.  Hence the recipe: the hungry should starve while obnoxious, conspicuous consumption by the rich continues to be on the rise. 

All developed countries, particularly those in the European Union, imposed severe ‘austerity’ measures on the people to meet the heavy debt incurred for the humongous bailout packages to those very financial corporates, who, in the first place, triggered the current recession.  Corporate insolvencies were converted into sovereign insolvencies.  Austerity drives were foisted while bankers were receiving billions as bonuses due to State funded bailout packages.  Transferring these burdens on to the people led to the angry rejection in the elections and the current crisis threatening the disintegration of the EU.

This idea of imposing austerity measures has arrived in India after claiming the electoral defeat of nine ruling governments in Europe so far.  The last in this line was France’s Nicholas Sarkozy. Germany’s Angela Merkel may well be the next.  This UPA-2 government and Prime Minister Manmohan Singh may well meet a similar fate unless they reverse the current trajectory of economic policies. 

A sustainable healthy growth trajectory can be achieved if the sums given as tax concessions are instead collected and used partly for reducing the fiscal deficit and partly for financing public investments.  Such investments will permit us to build the much-needed infrastructure while generating substantial additional employment.  The consequent rise in aggregate domestic demand as people spend their wages will set in motion a healthy growth cycle.  Invest in the people, not just the rich.  This UPA government, surviving in the name of the aam admi, must not be allowed to betray the people’s mandate by appeasing international finance capital and India Inc. at the expense of our country and people.

(May 30, 2012)