Tails, govts win; heads, people lose!

The oil companies or the government didn’t suffer any loss even when the international crude prices were high. Indian petroleum and natural gas statistics 2013-14 of the government have put subsidies provided during 2007-08 to 2013-14 at a ‘whopping’ Rs 3,09,837.61 crore. But the central government received Rs 6,21,520.00 crore towards customs and excise during the same period, while the state governments got another Rs 6,04,307.00 crore towards sales tax

Opposition parties which protest every time the prices of petroleum product go up do not adequately raise their voice when the government and its companies fail to adequately slash the prices. An example of this is when the government last hiked the prices of petrol (Rs.1.69/litre) and diesel (50 paise) on February 15. Of course, no effective resentment is registered at the time of deregulation of prices, either of petrol in June 2010, or of diesel in October 2014. It would be simply ludicrous to allow a policy to remain intact and to protest its effect as and when they surface !

The diesel price deregulation was cleverly initiated when there was a downtrend in prices. There could be protests if it were introduced with the increase in price. There were no protests against the deregulation although it gave the government a freehand to hike the prices whenever the situation warrants.

The price of Indian basket of crude has steeply fallen from its peak $132.47 per barrel in mid-2008 to $55.19 now. It should be recalled here that the high prices of 2008 made energy companies in United States extract oil from what were known as ‘difficult-to-drill places’ – from shale formations through fracking and horizontal drilling - though with high investments. That is how the US could extract an additional 4 million barrels crude a day.

Now, with a view to making the rivals’ business non-viable, the Organization of Petroleum Exporting Countries (OPEC) is allowing the prices to fall through, by not cutting its production. In other words, the oil politics, besides the supply and demand conditions, have engineered the fall now. Therefore, the Indian prices are bound to go up as and when the international crude prices rise, facilitated by the price deregulation.

On the face of it, it looks that the oil companies in India are frequently bringing down the prices and passing on the benefit of the international crude prices to the people; it was for the tenth time in a row in about five months that the petrol prices were slashed on February 3 and of diesel for the sixth time since October 17, 2014.

The petroleum products could be sold at much cheaper than at present. For instance, the import cost of crude per barrel (159 liters) was $45.32 or Rs. 2796.24 at the exchange rate of rupee of Rs.61.70/$ during the fortnight Jan 14-28, 2015. Since the cost on crude accounts for more than 90 per cent of the petroleum products, petrol could be sold at less than half the present price. Price could be still lower if the domestically produced crude too is factored in.

The oil companies or the government didn’t suffer any loss even when the international crude prices were high. Indian petroleum and natural gas statistics 2013-14 of the government have put subsidies provided during 2007-08 to 2013-14 at a ‘whopping’ Rs 3,09,837.61 crore. But the central government received Rs 6,21,520.00 crore towards customs and excise during the same period, while the state governments got another Rs 6,04,307.00 crore towards sales tax.

Including other gains (royalty from crude and gas Rs 82,930 crore and Rs 17,923 crore respectively; oil development cess of Rs 68,005 crore and dividends at Rs.89,074 crore), the total contribution to the state and the central exchequers worked out to Rs14,83,759 crore. That means, what government doled out in the name of subsidies was only 20.88 % of what it received from the sector.

There are other modes of benefits too; the Indian railways got Rs 5,405.37 crore on POL movement in 2013-14. Similarly, the profit of the public sector oil companies after tax aggregated to Rs.2,72,848.75 crore during 2007-08 to 2013-14. Another misleading claim is that the falling exchange value of the rupee raises the import cost of the crude. In fact, the import bill is heavy – it was Rs 8,64,875 crore in 2013-14, for instance.

But what is conveniently forgotten is the increased export earnings through the weak rupee. Export of petroleum products from India in 2013-14 fetched Rs 3,68,279 crore. All this suggests that the government is gaining huge resources from the oil sector, both during the time of high and low crude prices, while shifting the burden of high prices and inflation on the people.

By:PSM Rao