World oil price shifts: Who gains and by how much?

FALL IN CRUDE OIL PRICES HAS HAD A MIXED IM­PACT ON IN­DIA’S ECON­OMY AND ITS CON­SUMERS OVER THE PAST THREE YEARS

Resource Digest - - CONTENT -

The fall in crude oil prices in the past three years — in­duced partly by a de­mand shock and a sup­ply glut — has given a fis­cal bo­nanza to the Union gov­ern­ment, the ben­e­fits of which have not been en­tirely trans­ferred to re­tail con­sumers in the coun­try.

While the crude oil price from May 2014 to Jan­uary 2016 fell 74 per cent, re­tail petrol and diesel prices fell only 17 per cent and 22 per cent, re­spec­tively, in this pe­riod. And, while oil prices have risen 84 per cent from Jan­uary 2016 to Septem­ber 2017, re­tail petrol and diesel prices in the same pe­riod in­creased by a rel­a­tively mod­est 11 per cent and 24 per cent, re­spec­tively.

The rev­enues in­clude cess on crude oil, roy­alty on crude oil/ gas, cus­toms, ex­cise, ser­vice tax while govt ex­pen­di­tures in­clude un­der-re­cov­ery pay­ments to OMCS, fis­cal sub­si­dies, DBTL sub­si­dies and PMUY sub­si­dies.

Here is an at­tempt at analysing three dis­tinct as­pects sur­round­ing the oil econ­omy: The fis­cal im­pact on Cen­tral and state fi­nances and the con­sump­tion pat­terns of petrol and diesel in In­dia. The ob­jec­tive is to find who gained how much in a larger time frame, and who con­sumed how much for what.

RS 3 LAKH CRORE BO­NANZA FOR CEN­TRE; NA­TIONAL OIL COM­PA­NIES HAVE A PARTY

Ow­ing to high and ris­ing oil prices in the 2000s, diesel, kerosene and do­mes­tic cook­ing gas or liq­ue­fied petroleum gas (LPG) were heav­ily sub­sidised. The sub­sidy outgo was far more then than the in­come through taxes on petroleum prod­ucts.

As crude oil prices (for In­dian con­sump­tion bas­ket) rose above $100 per bar­rel in Fe­bru­ary 2011, FY12, FY13 and FY14 wit­nessed a sus­tained pe­riod of very high crude prices. As a re­sult, prices in the do­mes­tic mar­ket started touch­ing new highs and as a safety net, the gov­ern­ment capped diesel prices, sub­sidised LPG cylin­ders and paid the un­der-re­cov­er­ies to the oil mar­ket­ing com­pa­nies (OMCS).

Even though it con­tin­ued col­lect­ing taxes on petro-prod­ucts, the ex­or­bi­tant sub­sidy bill ef­fec­tively made the gov­ern­ment spend Rs 64,000 crore on petroleum prod­ucts in FY13. From this nadir, the Cen­tral gov­ern­ment achieved a fis­cal gain of Rs 2.5 lakh crore in 2016-17 — a turn­around of Rs 3.1 lakh crore in five fi­nan­cial years — led by a dras­tic drop in crude oil prices, in­crease in ex­cise du­ties and dereg­u­la­tion of diesel.

Prof­its of the gov­ern­ment-owned OMCS — In­di­anoil, HPCL

and BPCL — quadru­pled dur­ing this pe­riod, the debt sit­u­a­tion im­proved and the div­i­dend paid out to the Cen­tral gov­ern­ment, too, dou­bled. Among the PSUS, prof­its of HPCL soared seven-fold.

STATE REV­ENUES UP; MIXED IM­PACT ON FIS­CAL HEALTH

The states re­ceived an in­creased share from the Cen­tral pool of taxes, cour­tesy the Four­teenth Fi­nance Com­mis­sion. Low oil prices drove the growth in states’ share faster than ex­pected, since states earned rev­enues from the sales tax, or val­ueadded tax (VAT), levied on petroleum prod­ucts con­sumed in­side the state.

Ma­ha­rash­tra, Ut­tar Pradesh, Tamil Nadu, Kar­nataka, and Gu­jarat ac­count for more than half of the ag­gre­gate petrol and diesel con­sump­tion in In­dia, and have, thus, been con­sid­ered for this anal­y­sis.

The in­crease in VAT on petro prod­ucts is a sub­stan­tial part of the in­crease in to­tal state VAT from 2015-16 to 2016-17. Ma­ha­rash­tra and Ut­tar Pradesh man­aged to re­duce the gross fis­cal deficit, too, though the im­pact of oil on Ma­ha­rash­tra’s fis­cal health seems to be stronger than that on UP’S.

PAT­TERN OF PETROL AND DIESEL CONSUMTION ACROSS NA­TION

Con­sump­tion pat­terns of petrol and diesel across states, and across end-users, re­veal which eco­nomic sec­tors in which states would have ben­e­fit­ted had the en­tire 74 per cent fall in crude oil prices been trans­ferred to con­sumers.

Though Ma­ha­rash­tra con­sumed the high­est vol­ume of petro­prod­ucts in fi­nan­cial year 2016-17 — about 4.1 bil­lion litres of petrol and 11 bil­lion litres of diesel — con­sumers in Haryana, Pun­jab and the south­ern states utilised more fuel per per­son.

Haryana topped per head con­sump­tion in both fu­els: Petrol at 47 litres and diesel at 265 litres re­spec­tively. How­ever, Ma­ha­rash­tra has the nar­row­est ra­tio be­tween diesel and petrol con­sump­tion, which can be con­strued as a met­ric that rep­re­sents the bal­ance be­tween per­sonal use (petrol-fired ve­hi­cles) and busi­ness/public use (die­selfired trucks & pumps).

Agri­cul­tur­ally rich states Haryana and Pun­jab still spend more than a fifth of their diesel con­sump­tion on farm­ing and al­lied ac­tiv­i­ties, mainly pumps and trac­tors. In­dus­trial states such as Ma­ha­rash­tra, Gu­jarat and Tamil Nadu spend less pro­por­tion of diesel on agri­cul­ture and in­dus­try than other ma­jor states, im­ply­ing that the shift to bet­ter sources of elec­tric­ity has been achieved.

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