By Sanjay Jha
Oil has always been a slippery subject, in India it assumes an even more electric slick avatar as everyone pounces at the slightest provocation to its regulated suppressed price. It’s customary practise; we prefer a deceptive stealthy trick of small changes to an upfront admission for hard revisions. Of course, it makes for smart politics and good optics, even if commercial logic be damned. In a sense, we encourage a subtle imperceptible stratagem to brutal transparency. Thus, the reaction to the Rs 7.50 p increase announced by oil Public Sector Undertakings ( PSUs)’s was as expected; all hell broke loose and on the Star TV panel discussion a pompous BJP spokesperson seemed so exasperated by my supposedly animated arguments justifying price hike he threatened to boycott the poor channel itself. Extreme emotions running sky high, but mostly empty rhetoric, “ gas” if you please. . Fact is a price hike is a Hobson’s choice for the government. Or for that matter any government .
India is going through a phase of preposterous , conflicting expectations; if 2G is to be freshly auctioned ( to correct past misdemeanors) , expect a tariff hike. But we start complaining instantly ; you can’t have the cake and eat it too. . If India is to ameliorate living conditions of its sizeable underprivileged class and increase welfare allocations in the social services sector, we will have to gradually rebalance subsidies and increase taxes too. You can’t make an omelette without breaking eggs.
Rs 13 per liter on HSD
Rs 480 on LPG
Rs 32 on SKO.
That’s not small change, it is a large black hole in the depleting treasury manifested in rising fiscal deficit . Significantly, diesel contributes 55% of our overall subsidy burden, where the next tough call is inevitable. In terms of levies as a percentage of consumer price it is as follows:
It is easily discernible even to the half-blind that there is a pattern to the tax structure based on end-user application. But honeymoons are never infinite.
Those who cite the Goa government reducing its sales tax miss the point; the CM is just following the policy of liability transfer based on perceived revenue earnings from different sources. If he does not succeed, the Goa government will be soon in a bad debt trap, it could be just another populist stunt. Seriously, if you remove taxes ( central excise) , where does the government get compensating revenue from ? Somewhere, somebody has to pay. Since it is an inelastic essential commodity, no sincere government will exploit its revenue potential by taxing the vulnerable sections of society as it is committing political hara-kiri. Remember in India, subsidies exist as a soft substitute because we don’t have a social security net, unlike the western nations.
To understand the gargantuan impact of oil price hike , just look at the Oil Marketing Companies and their staggering losses on account of under-recovery in 2011-12
HSD : Rs 81192 cr
Kerosene: Rs 27352 cr
LPG Rs 29997 cr
Total Rs 138, 541 cr
By the way, these oil companies are listed companies with large market capitalization and have savvy shareholders too. Tell me, does it make rational commercial sense to perpetuate subsidies? Petrol ( already decontrolled) and diesel need to be urgently made mark to market; let there be fortnightly adjustments, either upwards or southwards depending on global oil indices and other economic variables.
The fact is China and India are both oil guzzlers thanks to explosive GDP growth , and are buying barrels far above global average oil consumption. That both the giant economies are seeing an auto industry revolution tells its own story. By keeping an artificially reduced price we are causing an increased MS/HSD demand , a dangerous addiction which is realistically unsustainable. SUV and fancy sedan users are conspicuous consumers of HSD. Worse it becomes a hot political potato exploited through cosmetic protestations such as Bharat Bandh etc.
With over 90% of our oil import bill at USD 150 billion last year India is as vulnerable to external economic conditions as a cat to cheddar cheese. A depreciating rupee can accentuate matters. There is no escaping that oil companies need to invest significantly in alternative fuels research, even as we conserve oil and restrict its unchecked appetite through enhanced prices. It will help if states and the central government work to improve public transport systems. It will drastically reduce two-wheeler travelers, road congestion, environmental damage and oil consumption.
The price of many other commodities rise exponentially higher, but we live in a world of high optics. In our oil dynamics, there will never be a sweetheart deal between the oil companies ( upstream or downstream) and the retail consumer. We have to be braced, seat-belts tight for a mid-course correction. There in no need to beat around the bush, we are in a doghouse if we perpetuate subsidies; it must dissipate though in gradual installments, and must be as painless as possible. Yet the writing is on the wall. It will be tough but it is time we took the bull by the horns.
The opposition , particularly the BJP, is accustomed to running with the hare and hunting with the hounds; a bundle of contradictions. So what would be their alternative game-plan or panacea for solving India’s economic challenges? NOTHING! The Bharat bandh is an extended performance of their classical political theatrics. We need to condemn such ludicrous waste of national energy ( pun intended). Ironically, to conserve energy India needs to burn the midnight oil.
You can follow Sanjay Jha at Twitter@JhaSanjay