Former Union Petroleum Secretary S C Tripathi, when in office and after retirement, has proactively contributed to the country’s energy security and voiced his views on how to increase in-house production, bring down imports and look for alternate sources of energy.
Tripathi, a UP cadre IAS officer of the 1968 batch, served as Secretary in the Ministry of Petroleum and Natural Gas and also held several senior posts including as Principal Secretary to Government of UP in charge of Finance. In an interview to VIJAY THAKUR, Tripathi spoke on the recent hike in prices of petroleum products and the long-term strategy the government should adopt to check import dependence on crude oil. Excerpts:
Q: Petrol and diesel prices are at an all-time high. The government is not giving any relief to consumers by cutting taxes. What is your view?
A: It is a fact that more than 80 per cent of our crude oil requirement is met through imports and in the coming years it may cross 90 per cent. For at least 20 years we would remain dependent on petrol and diesel. However, I believe the government has fallen into a trap or is in a Catch-22 situation vis-a-vis cutting the prices of petroleum products. I was Principal Secretary Finance in Uttar Pradesh for several years. I have also worked in the Union Finance Ministry as well as the Union Petroleum Ministry. So, I know what it is.
Taxing petroleum products is the easiest way of collecting revenue for any government. There is no cost of collection, there is hardly any leakage of taxes. Amazingly until last year petrol pumps were collecting more taxes than they were collecting by the actual price of petrol. The price of petrol includes the cost of crude oil, its transportation cost, refining cost and its margins, margins of dealers. So, all this on one side and the tax collection through petrol pumps on petroleum products on the other side.
Last year tax on petrol was more than 120 per cent and it was around 90 per cent on diesel. It would not be wrong to say that petrol pumps in the country are working more for the finance ministries of the Centre and states. Even today, the tax on petrol is around 100 per cent and tax on diesel is around 70 per cent. No finance minister whether at the Centre or in states would like to do anything about it.
In European countries taxes on petroleum products are high because they want to promote clean energy. They are a rich society and want to bring down their dependence on fossil fuel. But none of the developing countries have such high taxes on petrol and diesel as we have in India.
None of our neighbours do and the irony is that some of them do not have refineries and import oil from us. Yet their petrol prices are cheaper than India. Nepal, Bhutan and Bangladesh mostly import oil from India, but their retail prices are much lower.
Q: You said there is a trap. Would you please explain the trap and why the government does not want to bring down petrol and diesel prices?
A: The trap for the government is that this is an election year. While on the one hand they are under public pressure to cut duties, on the other hand they cannot cut expenditure on the government’s popular schemes. If the government cuts taxes on petroleum products, it would increase inflation, and from where would it generate finances for the schemes it has announced in the budget. Budget provisions were not even made for some schemes like Ayushman Bharat, which would give health security to 10 crore families.
In previous governments crude oil prices in the international market were very high. It had touched US $140 a barrel. Indian basket of crude oil was around US $110 a barrel. Today crude oil prices in the international market are much lower. So, the people are asking why fuel prices are much higher now.
Petrol prices are higher because the government has been imposing more and more taxes on petroleum products. When the price started coming down in 2014, the government increased tax on petrol and diesel to fetch more revenue which was certainly a very good strategy. They were able to manage their fiscal and economic problems due to increase in taxes.
We consume nearly 10,000 crore litres of diesel and around 4,000 crore litres of petrol every year. In about two years time taxes on petrol and diesel were increased by Rs 10.5 and Rs 14 a litre respectively. So, in a full year additional tax collection would come to around Rs 180,000 crore. And the total tax collection in a year comes to around Rs 5 lakh crore, Rs 3 lakh crore for the Centre and Rs 2 lakh crore for states.
Q: What should the government do to give relief to people and what should be the short-term strategy to stabilise petrol and diesel prices?
A: I am of the strong opinion that the government must show some sensitivity towards the subject. For the past year, I have been suggesting through various forums to bring petrol and diesel under GST. At least it can draw up a roadmap to bring it under GST.
It may not do it immediately, but it should start taking steps in this direction. Meanwhile, it may also progressively reduce taxes on petroleum products to GST level. Side by side, it should lay stress on generating more revenue from other resources to improve and compensate the losses.
A democratically elected government must make some gesture to show it is sensitive to the common man’s problem. And if you cannot do it, then refer the matter to the Finance Commission, which can recommend provisions for revenue and expenditure for the next five years. Let the Finance Commission say how it would bring petroleum products under GST.
Q: As you said we are mostly dependent on import of crude oil, which price-wise is very volatile. What should the government do as a long-term strategy?
A: First, I would ask government to promote gas fuels and switch over to gaseous form of energy as much as we can. Among all fossil fuels, gas is the least polluting. Unfortunately, our gas consumption is going down. Earlier we managed to increase our gas consumption by 11 per cent of the total fossil fuel consumption. It has now come down to a mere six per cent. The world average is about 23 per cent.
Most countries are switching to gas, but we have no clear roadmap for it. We do not have much gas, but it can be imported. Our neighbours have gas. Turkmenistan, Iran and Myanmar have enough gas to meet our requirements, but we have not been able to work out a system to make use of gas from our neighbourhood. The government should have a long-term plan to get gas from our neighbouring countries.
Q: The government is also planning to switch over to electric vehicles. How do you view that?
A: At present for transport purposes, we do not have any substitute to replace petrol and diesel vehicles. Even though we have electric vehicles and the government has ambitious plans, it is at a nascent stage. It has many problems. First it is very expensive, second we need to generate more electricity to charge these vehicles, most of which would again come from fossil fuels.
Having said that I would say it is a very good initiative for our long-term energy security. The first revolution in electric vehicles would come from two-wheelers and small transport vehicles which could prove value for money to a consumer.
Immediate steps should be taken to increase electric vehicle share like China has done. In certain polluted towns China has stopped registering internal combustion engines and made provision for charging stations for EVs. We should also come up with similar strategies to promote electric vehicles and reduce EV cost.
Q: What should the government do to bring about more energy security?
A: Energy is a vital component of any economy. Before the industrial revolution started India and China’s contribution to world GDP was more than 50 per cent. In 1950 it reduced to only one or two per cent of the GDP.
We cannot fight our geology, we do not have resources of hydrocarbons, particularly petro-oil. Unfortunately, we have built no big hydro project after Sardar Sarovar project, whereas China has increased its hydro energy capacity manifold. Second, we need to stress on nuclear energy like China which is setting up 37 new nuclear power plants.
The government is doing remarkable work by adding solar and wind energy and it is increasing exponentially. However, we have not developed manufacturing capacity, most of the solar panels are imported. If something is not done soon, we would remain dependent on foreign solar equipment.