There is growing doubt that there is no transparency in determining the price of petroleum products in the country, and the central government is tactfully snatching benefits that should go to the people by reducing price on one hand and increasing duty on the other. Today, price is determined in a manner that has no connection to the cost of domestic production or international price. Even the benefit of the nominal fall in price determined that way is stolen by the government through tariff.
Before price control was taken away, when oil price rose in the international market, it did not affect the price here. Central and state governments and companies used to bear the burden of rising prices. Market price control of petroleum products was taken away, like in the case of other markets, by stating that it creates huge liabilities for the government and companies in general in some years. When the control was taken away, the central government of the day had given a promise to the people: the price of petrol will rise and fall proportionally to crude oil prices. That assurance is not being met.
When Modi government came to power at the centre, the international price of crude oil was 108.56 dollars a barrel. Yesterday the price was 38 dollars. The price has fallen to a third, but only a small part of that fall was passed on to people. The government and companies cannot take the burden of rising crude oil price. But when the price slumps, the government and companies compete to reap the benefits.
Even during the term of the previous government, this promise was broken on some occasions. The criticism that companies and the government are making use of lower price was raised even then. Now it has become more clear and huge.
The signal from the duty hike in six weeks is this: additional excise duty imposed now is 30 paise for a litre of petrol and Rs 1.17 for a litre of diesel. In November, duty on a litre of petrol and diesel was increased by Rs 1.60 and 30 paise respectively. Through these two increases alone the central government will collect additional revenue of Rs 5,700 crore in the remaining financial year.
Price control in India is ironical. Now the beneficiaries of price control are the government and companies. This strategy of filling government coffers using petroleum market is not commendable. First, it is a policy for the wealthy. It must be assumed that duty on petroleum is increased to cover up the leakage in direct tax revenue.
The indication is that direct tax revenue will be short by Rs 30,000 crore to Rs 40,000 crore this year. Direct taxes, including income tax, affect the rich. However, duty on petroleum affects the middle class and ordinary people. This change from direct taxes to indirect taxes is against morality and social justice.
This move will negatively affect the competitiveness of Indian economy. India is among the countries with the highest fuel price. The rising cost of fuel in India because of the wrong policy of the central government will negatively affect not only producers who export but also producers who have to compete with foreign products.
(The writer is a professor at the Centre for Development Studies, Thiruvananthapuram)
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