Step on the gas
Why mustn’t the consumers benefit from lowering crude prices globally? The government should rethink its policy
REFORMS and economic restructuring are not anti-people. India has to open up further as it integrates with the rest of the globe, its level of engagement all pervasive.
The pricing reforms of petroleum products at retail outlets were an outstanding reform for one allowed the market to discover pricing and the user was paying for it. After the distortions that crept into the industry after the UPA government decided to do partial deregulation for only petrol led to structural distortions creeping into the sector. The differential between petrol and diesel pricing over time led to an anarchic situation where harried motown players scurried to build diesel powertrains. Though the UPA towards its last days did rectify that by increasing diesel prices by 50 paise per month, industry and environment had been delivered a death blow. UPA worried that India, a diesel economy, would see a backlash if diesel prices were hiked in crude spike age.
Now, with the comfort of an ever lowering crude oil regime, diesel and petrol consumers are furious and contemplating revolt against the unrelenting price rise. More so ever since the daily pass through was allowed from a fortnightly regime. To bear the burden because the government wants to rake in revenues is ludicrous, nine excise hikes have poleaxed the consumer. Imagine that the BJP led government has had the luxury of a salutry crude price regime from day one. Ironically, consumers have never ever benefited from lowering crude prices globally. Given that over 78 per cent crude was met through imports, moderate international prices should have benefited Indian consumers. Instead, it was a double whammy for the consumers especially the middle-class and aspirational youngsters who overwhelmingly voted for the BJP and Narendra Modi in the 2014 Lok Sabha elections and every state polls held there after, barring Delhi and Bihar.
What’s more significant is that petroleum minister Dharmendra Pradhan justified the consistent hike in diesel and petrol prices while concomitantly, his mentor, Arun Jaitley, never left a chance to increase the excise impost.
All the more, it was foolish for ministers at the centre to justify the increase in petrol and diesel prices as well as excise duties, citing rates prevailing in countries like France, Sweden, Germany or Italy. It appeared to be the theatre of the absurd.
Let’s not forget the basic realties of Indian economy while making a valiant attempt to justify illogical and irrational increases in prices of petroleum products, including aviation turbine fuel, making rail, road and air travel expensive. Indian per capita income was much lower than what an average European earns in these countries. Similarly, disposable incomes and purchase power of consumers in Europe was much higher than what’s possible with Indian people who drive cars to office.
On the other hand, to allow petroleum companies unfettered freedom to fleece the consumers and finance their own inefficiencies would not tantamount to reforms. Both Dharmendra Pradhan and Arun Jaitley will have to take a call in unison on reining in the prices of diesel, petrol and aviation turbine fuel given that even the transport of goods have been adversely impacted the industry.
How can a finance minister justify a nine time increase in excise duty that resulted in Rs 11.77 per litre on petrol and Rs 13.47 per litre on diesel as impost over the last three years? Perhaps, one valid argument for such a rise in petroleum product prices and excise duties was to cushion future crude oil spurts. One other oft-cited reason was to build strategic crude reserves to tide over possible oil shortages in the event of a war or conflict. Third reason offered was to insulate Indian economy from volatility in global energy markets due to a slew of factors. While the stated objectives were more than laudable, setting a time frame for achieving the goals and methodology to get there was very important. At a time when the investment sentiment and consumer spending was weak, leaving more resources with companies and people would perk up demand for goods and services.
Secondly, moderation in prices of petroleum products coupled with reduction in excise duties with accrued benefits would instill confidence in the process of reforms.
Otherwise, steep increase in petroleum prices would be attributed to an unholy nexus with players like Reliance and British Petroleum that have announced mega plans to enter retailing in these very products. There is no reason why the government should not rethink its policy towards energy pricing, especially in the wake of controversies surrounding gas prices applicable to both state-run and private companies.