BJP TODAY

October 1--15, 2005 - Vol. 14, No. 19

Economics of Oil Politics
From Our Correspondent

Handling the charge of highly inflammable petroleum ministry is infact playing with fire. The charge of this sensitive ministry, whose policies have a direct bearing on the entire 110 billion population of the country, is made more difficult by the ups and downs in international oil markets, which are even sharper than the roller-coaster ride of the stock market. Last year (2004-05), India imported some 70 per cent of its crude oil requirement for over Rs 1,35,000 crore. With such high import dependence, any surge in international oil prices is bound to have a deep impact on the economy of a developing country like India. This has been the order of the day for the past few years when international prices have only gone northwards. But it is the responsibility of politicians to look for alternatives to insulate common man from volatalities of the global markets.

Last one decade has been explosive for the international oil market. With imported crude oil forming one-third of the input, the Congress government under P V Narsimharao decided to fix petrol and diesel prices in line with the global trends. But true to the Congress tradition, the decision was never implemented. It was the NDA government led by Shri Atal Bihari Vajpayee, which took the bold and important decision to link domestic prices with international trends. And the implementation of this humengous task of balancing the cost of production and the sensitivities of consumers came upon me as the Petroleum Minister.
While implementing this decision from April 1, 2002, our government made a conscious effort to see that the common man is least burdened. So while petrol and diesel prices were decided to be revised in step with changes in international markets, prices of domestic cooking gas (LPG) and kerosene were frozen for two years. We delegated the responsibility of fixing the domestic retail price of petrol and diesel on the principle of imported cost (imported parity pricing) on public sector oil companies. Every fortnight, the oil companies revised prices based on the average cost of 15 days.
At that time it was decided that (NDA) government will provide budgetary support (subsidy) for keeping LPG and kerosene price static. As a result of the landmark decision, over the next two years petrol and diesel prices were raised 17 times in line with rise in international prices. But more importantly, the price of the two auto fuels was reduced on eight occasions, a first in the Indian history.
The present Petroleum Minister Mani Shankar Aiyar is a former diplomat. And heading the Council of Ministers is eminent economist Manmohan Singh while another renowned lawyer cum economist P Chidambaram is looking after the Finance portfolio. So when Aiyar, soon after assuming office in May of 2004, remarked that his government will bring a "better policy", I presumed that the trio would pullout a rabbit out of the hat. But nothing has happened and, of course, no miracle as was promised.
Aiyar had announced that prices would not change as a result of his so-called new policy on the anvil. But his promise soon vanished in thin air. The UPA government first raised fuel prices on June 16, 2004. The latest raise came on September 6. During the past 16 months, Dr Manmohan Singh government has raised petrol and diesel prices six times and LPG price thrice. And has lowered fuel price only once and that too only for petrol.
In contrast, during the two years of free pricing during our regime, cost of a litre of petrol in Delhi had gone up by only Rs 7.17 (Rs 23.54 to Rs 33.71) and diesel by Rs 5.15 per litre (Rs 16.59 to Rs 21.74). The Congress government during the past 16 months has raised petrol price by Rs 9.78 per litre (Rs 33.71 to Rs 43.49) and diesel by Rs 8.71 a litre (Rs 21.74 to Rs 30.45).
For the common man, we had released 4 crore new connections during my tenure and wiped out the entire waiting list of 1.10 crore. But soon after the Congress came, availability of the mass consumed cooking fuel has become a problem again. Not only this, Aiyar also raised LPG price on three occasions, the total hike coming to Rs 53.15 per cylinder. A LPG cylinder now cost Rs 294.75 in Delhi. So when Aiyar claims that price of LPG has not been increased this time around, he looks ridiculous.
The pricing policy adopted by the present government is responsible for the vast gap between the price increases during the two regimes. If the greed is to amassing tax revenue more than the target, then consumers have to pay the price. With the surge in international oil prices, government's customs and excise revenue has also gone up substantially. But the present regime is unwilling to part with the additional revenues it earned because of the rise in international crude prices and so the burden on the consumers as a result has been more. If customs and excise duties are lowered so as to keep the revenue flow from the two indirect taxes at same level as that was budgeted, then the burden on the consumers will be far lesser. When international prices rose, we had lowered customs and excise duty by 2 per cent. Congress government has not done that. Instead, it has imposed an additional 2 per cent education cess. As a result of this, the Congress government has in just 16 months managed to match the increase in fuel prices what the previous NDA regime had effected in two years.
To compound the woes of consumers is the policy of the state government to levy higher sales tax rates on petroleum products. And Maharashtra has always been the leader in this. As Petroleum Minister, I had requested the Congress government in Maharashtra to lower sales tax on petrol and diesel. But the state government did not pay heed, may be due to political reasons. However, despite levy of Value Added Tax (VAT) the situation is the same. Delhi levies a sales tax of 20 per cent on petrol while the same in Mumbai is 30 per cent plus Re one a litre additional surcharge. At most of the places, sales tax on diesel is lower than petrol. This is because common man uses diesel as fuel. So you see diesel being used in railways, public transport buses, trucks, tempo, agriculture pump sets, tractors etc. Delhi levies a sales tax of 12.5 per cent on diesel while in Mumbai it is 34 per cent plus Re 1 a litre additional surcharge. This is precisely the reason why petrol price in Mumbai (at Rs 49.16) is costlier by Rs 5.67 a litre than in Delhi (Rs 43.49). Similarly diesel in Mumbai (at Rs 37.57 a litre) is costlier by Rs 7.12 a litre than in Delhi (Rs 30.45).
Another example of directionless leadership of Shri Mani Shankar Aiyar is the kerosene bonds. Governments borrow money to meet capital expenditure requirement but Petroleum Minister has ensured that debt is raised for meeting revenue expenditure. These kind of bankrupt policies are driving the once pride of the country Navratna and Mini-Ratna oil firms to bankruptcy. Aiyar's policies have ensured that oil firms record net loss for the first time ever in their checkered history. Oil firms, which are considered the backbone of the Indian economy, had in 2002-03 earned a net profit of Rs 23,252 crore and Rs 24,315 crore in 2003-04. These companies are now faced with bankruptcy as losses threaten to erode their networth and are unable to meet their operating expenses from the revenue they generate. It is a serious issue. One needs to think why the pride of the nation is today in such a bad shape. If the government truly has the interest of the nation at its core, then the Prime Minister Dr. Manmohan Singh should himself intervene to check the erosion of oil wealth (PSUs) and pullout consumers from the viscous circle of price increases. Perhaps the solution lies not in looking at North Block (the seat of Finance Minister) for concessions to avoid price hike, but to change the leadership at Shastri Bhawan (where the Petroleum Minister sits).
(Writer is a former Union Petroleum Minister.) q