The all-time friend of Prime Minister Narendra Modi seems to
have got angry. And that too without any signs of being tamed. The crude prices
that dipped to as low as USD 28 a barrel in January 2015 have shot up to USD 83
a barrel as on October 2, 2018. To add fuel to fire, the Indian Rupee has also
weakened, increasing the purchasing price.
Ever since May 2017, the crude prices have been increasing
gradually. However, since August 16, 2018, the fuel cost has crossed the
highest point during the UPA regime. So much so, the petrol price has crossed
Rs. 90 in some places. It is all set to touch the century mark if the
government does not step in.
Despite the steep increase, the central government has not shown
any signs of announcing a price cut so far. This seems to be a tough stand,
considering the fact that India will go to the Lok Sabha polls next year.
Meanwhile, the opposition has taken charge and has decided to
take on the Modi government on every front. Be it Rafale, LIC bailing out
debt-ridden ILF&S, or petrol price, the government is being attacked on a
regular basis. The blame game has already started.
The Congress-led opposition wants oil prices to be reduced, by
hook or by crook, showcasing itself as the Messiah, in the hope of garnering
votes. On the other hand, the NDA government blames the UPA for the current
fiscal mess.
The official twitter handle of the BJP government claimed that
Modi government paid off the unpaid bills of oil bonds worth Rs. 1.3 lakh
crore. The twitter post reproduced what the then prime minister Manmohan Singh
had said about the increasing oil prices in the year 2012. “The subsidy on
petroleum products has grown enormously. Where would the money for this have
come from? Money does not grow on trees”.
The tweet also quoted Manmohan Singh as mentioning that issuing
oil bonds is not a permanent solution in the year 2008. “We are only passing on
our burden to our children, who will have to repay this debt”. Using this
quote, the BJP government has claimed that it paid off the pending bills with
interest because “we should not burden our children”.
Not only this, the petroleum minister Dharmendra Pradhan, said
we also paid Rs. 70,000 crore towards interest. “In total, we (govt) discharged
our responsibility by repaying over Rs. 2 lakh crore”.
However, Boomlive, an independent digital journalism agency,
laid bare the facts. The report showed that it is a fact that the UPA issued
oil bonds worth Rs. 1.44 lakh crore for mitigating the immediate financial loss
for funding the under-recoveries of the oil marketing companies (OMCs).
However, only two bonds worth Rs. 3,500 crore matured during the
current government’s term. The outstanding balance of Rs. 1.3 lakh crore
remains the same since 2014-15, as the government did not issue new bonds. The
next lot will mature in October and November 2021 amounting to Rs. 5,000 crore
each. If the current government continues after the 2019 elections, even then,
it would not have to pay Rs. 1.3 lakh crore, as per the maturity instructions.
Now the question is whether these bonds can be paid in advance.
The answer is a big “No” as the government prepares its budget on a cash basis,
not on an accrual basis. This means the government will budget only for
items that are due in the current year. Besides, why a government, that is
barely able to maintain its fiscal prudence, would pay its liabilities before
the maturity period?
Hence the claim that the higher prices helped the government in
repaying its debts is not at all true. But then why prices are the highest in
India, as compared to the neighbouring Pakistan or Myanmar, where petrol price
is around Rs. 60 and Rs. 41.92 respectively.
The answer lies in the complex tax structure on petroleum
products. The Modi government had a windfall gain when the crude prices went
down to as low as USD 28 a barrel during 2014-15. The average crude prices have
been rising year on year but it has not touched USD 111 per barrel, the highest
during the UPA regime. The average price during 2015-16, 2016-17 and 2017-18
was USD 46, USD 47 and USD 56 per barrel respectively.
The government did not pass on the benefit to the end consumer.
Instead, the excise duty was increased manifold. While in May 2014, a consumer
paid 31 per cent towards taxes while purchasing a litre of petrol, the
composition has drastically increased to 45 per cent in September 2018. This
has been calculated based on the petrol prices in Delhi. In states like
Maharashtra, where VAT is comparatively higher, the tax component will clearly
be higher. Also, the VAT that is levied is ad-valorem. It means it will
increase with the increasing cost.
The petroleum sector alone contributed Rs. 18 lakh crore to the
exchequer from 2014-15 to 2017-18 as per the petroleum planning and analysis
cell. Out of this, Rs. 11 lakh crore went to the Centre while the rest was
distributed to the state governments. Certainly, the oil marketing companies
have benefited during these years. Not only their profits but also their
capacity to pay a dividend to the government has considerably increased.
In other words, while the retail consumer is facing the ire of
high prices, the government and OMCs are actually making money. But then the
government has no option. Neither the Centre nor the state governments are
willing to reduce the taxes as their revenue has decreased considerably ever
since the goods and service tax (GST) was launched.
The cash-strapped BJP government does not have an option. If it
reduces the taxes, it will have to print more money to meet the expenses of
social welfare schemes, throwing fiscal consolidation to the winds.
Also, barring petrol and diesel, other fuels like kerosene,
natural gas, liquefied petroleum gas, are not market-linked. In terms of
volatile oil prices, it is extremely difficult to manage prime minister’s pet
scheme –Ujjwala, which is highly subsidy driven. The government might have
campaigned and motivated the consumers to give up their subsidy but the fact is
that around 50 million consumers have been added since the launch of Ujjwala
scheme. The government intends to add on another 30 million households by 2020
in the remote regions of the country.
It is good to see that women are moving away from the
traditional fuels like wood, charcoal etc., but the cost of delivering these
cylinders to the remote areas will be considerably higher. Also, the consumers
under Ujjwala scheme are very poor. The moment they are asked to pay full cylinder
price, they may switch back to the traditional ways of cooking. In other
words, the government will have to bear the subsidy burden for the coming years
as well.
Given this scenario, the complex taxation structure on transport
fuels is likely to stay for a longer time. In case, transport fuels are also
brought under the GST, which would have been an ideal situation to deal with
the rising fuel prices, the government will not have much to spend on the
welfare schemes.
Simply put, the Modi government is in a fix. Considering an
election year, it would have ideally reduced the petrol prices to win votes.
But it cannot put the welfare schemes at risk as well. For, it is the poor, who
get lured by the pre-election doles.
As far as petrol is concerned, the government so far is adopting
the strategy suggested by the union tourism minister Alphons Kannanthanam: “Who
buys petrol? Somebody who has a car, bike. Certainly, he is not starving.
Somebody who can afford to pay has to pay."
Or the recent strategy as propagated by union minister Ramdas
Athawale: “I am not suffering from rising fuel prices as I am a minister. I get
it for free.” Whatever be the strategy, it’s not going to work. Comparatively,
the then Prime Minister Manmohan Singh’s plea that money did not grow on trees,
would perhaps have a greater weight.
(The
writer, a company secretary, can be reached at jassi.rai@gmail.com)
