The mechanism of petrol-pricing is as turbid as crude oil. It also needs to be refined in order to clean the lies from the claims. Market forces, not the government, should decide the prices in a deregulated environment ~ that is the system in operation in India now. But that did not happen during the season of the Karnataka elections. Petrol and diesel prices did not go up for 19 days, although the oil marketing companies had all the freedom and the need to effect the increase. That is still fresh in the minds of the people, whose memory is short even though similar developments have happened earlier as well.
The prices rebounded only after the elections; started spiraling by the day from May 14 and are still on the rise. The per litre petrol price of Rs 76.24 in Delhi on 20 May exceeded the earlier peak ~ Rs 76.06 in September 2003. While this has shocked the people, economists can conveniently play down the rise and can prove that it is no rise at all in real terms, when the general inflation for 15 yeas is factored in. The argument in simplest terms is that if a commodity was sold for Rs 76 15 years ago and is being sold at the same price today, it amounts to a price decrease in real terms, because the prices of all other goods have increased multifold.
But the truth is that petrol prices have always commanded a higher than normal rise, not due to the increased input costs and market forces, but mainly on account of the greed of governments to squeeze maximum benefit from the sector. That is why the petrol price was very high then and is so now; it is ludicrous to compare general inflation with petrol and diesel prices.
There is no need to get into esoteric economics like inflation, real prices, relative prices and so on to grasp the sleight of hand. Suffice it to compare the cost of crude in the international market, the rupee-dollar exchange rate and the price of petrol then and now, just as in current prices now and current prices then. On 3 September 2013, the crude oil import price was $111.59 per barrel (159.99 litres). At the then prevailing exchange rate of Rs 66.89 a dollar it translated to Rs 7,464 which meant we paid Rs 46.65 per litre of crude. The market price of petrol was Rs 76.06.
Compare this with the 20 May 2018 petrol price of Rs76.24. The crude import price on that day was only Rs 33.69 a litre since the crude oil price was $79.14 a barrel or Rs 5,391 at the then exchange rate of Rs 68.12 a dollar.
This means that the present price could be much lower than what it is if governments stopped garnering undue profits. Central and state governments’ incomes rise although people’s incomes erode with high petrol and diesel prices. Different State governments have different rates of VAT/Sales tax on petrol ranging from 6 per cent in Andaman and Nicobar Islands to 39.78 per cent in Mumbai. Twenty states levy more than 25 per cent VAT. The eight which levy more than 30 per cent are : i) Andhra Pradesh (36.05); ii) Kerala (32.06); iii) Madhya Pradesh (36.14); iv a) Mumbai, Thane and Navi Mumbai (39.78), iv b) the rest of Maharashtra (38.76); v) Rajasthan (30.86), vi) Assam (30.82); vii) Tamil Nadu (32.08) and viii) Telangana (33.23).
The government imposes a host of taxes on petrol including Basic Customs Duty, additional Customs duties, basic excise duty, special additional excise duty and road and infrastructure cess. In addition, 3 per cent social welfare surcharge is levied on the total Customs duty of petrol. Branded petrol is hit with a little higher additional Customs duty (Rs 5.66/litre) and basic excise duty (Rs 5.66/litre) instead of Rs 4.48/litre for unbranded petrol in both cases.
Further, the Centre gets hefty dividend from the public-sector oil companies. Indeed, the petroleum sector alone contributes 40 per cent of central indirect taxes and this sector is outside the GST cover. In other words, 40 per cent of taxes are not under the GST. And that is another issue.
Despite its claims to the contrary, the government has always been the biggest beneficiary of the petroleum sector and at the cost of burdening the people with high prices of petrol and diesel and with their cascading effect on all other goods and services.
When the petrol prices were deregulated in 2010, the plea advanced was heavy losses to the oil marketing companies and the burden of subsidies on the government. Neither of the reasons was true. During the five-year period before the deregulation, from 2005-06 to 2009-10, the Government of India received a huge Rs 3,91,486 crore as tax and non-tax revenue from the petroleum sector against the paltry subsidy it paid, Rs 26,008 crore, which equaled to 6.64 per cent of what it received. Similarly, the companies under the petroleum ministry earned a profit after tax of Rs 1,26,294 crore and the three public sector oil marketing companies gained Rs 36, 653 crore.
The bonanza for the government and oil companies have increased further after the deregulated prices and more so during the era of decreasing international crude prices. The government’s petroleum and natural gas statistics 2016-17 boasts: “Central excise collection from petroleum sector (crude oil and petroleum products) during 2016-17 was at Rs 2,79,005 crore which was 40 per cent higher as compared to 2015-16 (Rs 1,98,793 crore). Customs duties collected on crude, petroleum and petroleum products for 2016-17 at Rs 21,290 crore were 40 per cent higher as compared to 2015-16 (Rs 15202 crore). Oil Development Cess paid by upstream companies was lower by around 14 per cent in 2016-17 (Rs 12941 crore) as compared to 2015-16 (Rs 14578 crore). Sales-tax payments collected on crude oil, natural gas and petroleum products during the year 2016-17 at Rs 174731 crore was 17 per cent higher than the sales-tax collected during 2015- 16 (Rs 14986 crore).”
The recent increase in the prices of petrol and diesel do suggest that the government is going to protect its revenues even if the international crude prices increase. Yes, there is every danger of the international prices going up because of
the changing global conditions that influence oil production and distribution. The threat of US sanctions against Venezuela and Iran, combined with increased world demand for oil, may lead to further increase in crude prices.
Undoubtedly, there are strong reasons for further rise in petrol and diesel prices in India. But there is ample scope for the government to reduce and halt the increase by reducing its income from the petroleum sector; it has the capacity to do so. But, does it have the will?
The writer is a Hyderabad-based development economist and commentator on economic and social affairs.