Mocking deregulation, The authors of economic liberalisation are now debunking their own prophesies. For many years after Independence, oil market was...
The authors of economic liberalisation are now debunking their own prophesies. For many years after Independence, oil market was regulated. The government used to administer oil prices. This was aimed at insulating Indian consumer from large amplitude of fluctuation in international crude oil prices.
The NDA I government of Vajpayee has done away with Administrative Pricing Mechanism in oil sector. The logic was simple. As the international oil prices rise, domestic market prices would also increase. Similarly, if international oil prices fall, the benefit would flow to the consumer back home. But, none perhaps would have expected that oil prices in the world market would decline that too so drastically. Contrary to anyone’s expectations, international oil prices plummeted by about 55 per cent since June 2014. The downward trend still continues. Precisely, here the central and state governments are indulging in economic deceit. The full benefits of deceleration in global oil prices are denied to the consumer. The governments did not hesitate to transfer the burden of global oil inflation to the consumer. But, elected governments are debunking the philosophy of deregulation to deny its benefit to the consumer. The Central Government has hiked the excise duty on petroleum products four times since November 2014 which would bring additional revenue of Rs 20,000 crore for the Government. The Telangana state government imposed an additional Value Added Tax of Rs 2 a litre on petrol and diesel. This simply means that the oil companies which should have passed on the benefit of further fall to the consumer now have to absorb this additional tax. Thus, the governments are exploiting the situation of steep fall in global oil prices to fill their coffers at the cost of the common man. Besides, such an approach exposes the hypocrisy in oil price deregulation.
The Central Government by increasing the excise duty on petroleum products on four occasions earned additional revenue of Rs 7.75 a litre on petrol and Rs 6.50 a litre on diesel. All this should have come to the consumer as per the theory of deregulation according to which domestic prices should reflect global prices.
In fact, for a decade now, the total revenue accruals for the Centre from oil taxes is significantly higher than the sum of under recoveries of oil companies and all direct subsidies to the consumer. When global prices soar, governments have greater bonanza.
Indian consumer pays more for fuel than their counterparts in the United States or Japan where the per capita incomes are many times higher or countries like Pakistan or Sri Lanka which are relatively poorer. This is despite oil prices having a cascading effect on the prices of all commodities. But, governments continue to consider petrol and diesel as revenue spinner.
The so-called international parity pricing sans any logic. The revenue generated from taxation is not financing development of domestic oil industry. Instead, it is used for bridging the fiscal deficit caused largely due to fiscal profligacy. Thus, it is the high time to revisit the policy on oil prices.