Step on the gas

Why mustn’t the con­sumers ben­e­fit from low­er­ing crude prices glob­ally? The gov­ern­ment should re­think its pol­icy

Financial Chronicle - - EDIT, OPED, THE WORKS -

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.

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