Volume 7, No. 7, August-September-October, 2006


Govt. Loot Behind Oil Price Rise


On 5th of June, the UPA government announced, yet another hike in the prices of petrol and diesel, the price of gas cylinders had been raised earlier itself. Petrol prices were raised by Rs. 4 and diesel prices were raised by Rs. 2 per litre. This seems to have become a biannual routine of the government. Again, as usual, the ‘left’ did some routine phrase- mongering but the unusual aspect of this time’s price hike was that there was no ‘roll-back’ after the routine protests. All that the UPA agreed to was a marginal reduction in the customs duties on petroleum products. Given the fact that petroleum products act as intermediaries which enter the production of most goods, the cascading effect of the price hike are already visible.

With the elections to state assemblies behind it, the UPA was not really concerned about the protests. However in a futile effort to establish its pro-people credentials, the Congress party issued a directive to the Congress ruled states to moderate the impact of the price hike on retail prices, by foregoing sales tax revenues that would be garnered on the increment in price. Many of the Congress –run state governments decided to comply with the central directive.The ‘left’ was saying that the government should reduce the central taxes.

According to the petroleum minister, Murli Deoda, this kind of ‘hard’ decision is inevitable due to the rise in the international prices of oil, since India imports nearly 70% of its oil requirements. It should also be noted that the before April, 2002, the government had indeed imposed a ceiling on the domestic prices of oil and it is only after that, that the oil prices have been allowed to fluctuate as per the norms of the ‘free market’. And what is even more frightening is that according to the WTO agreements, India would have to scrap the oil subsidy completely, latest by 2010. This would mean that even kerosene would not remain in the reach of common people because as of now, the government is giving a subsidy of Rs. 9 per litre on it. The Centre has clearly stated that once the international prices cross $75 a barrel, the final consumer will not be shielded against price increases at all.

Also it has been found that the upstream oil companies (or oil companies other than the oil marketing companies, such as ONGC, OIL and GAIL) had recorded profits to the tune of Rs. 15,600 crores in 2004-05 and Rs. 14,600 crores in the first nine months of 2005-06; that the oil industry’s contribution to the central exchequer in terms of duties, taxes, royalty, dividends and so on rose from Rs. 64,595 crores in 2002-03 to Rs. 77,692 crores in 2004-05. The petroleum sector alone contributed around two-fifths of the total net excise revenues of the Centre. Infact the incidence of taxes as a proportion of retail price in India was higher than in the U.S., Canada, Pakistan, Nepal, Bangladesh and Sri Lanka! Additinally, most of the duties are ‘ ad valorem’ implying that the government’s revenues will not suffer if it decides to reduce the tax rates as the oil prices are raised. Even after the present reduction in tax rates, it still stands at 32% per annum which is much higher than many other countries. It is being expected that the government revenues are likely to increase by approximately Rs. 5000 crores! There was a suggestion made by a committee headed by C. Rangarajan that the center should shift out of ‘ad valorem’ excise duties and fix the central excise duty at a specific rate of around Rs. 14.75 per litre for petrol and Rs. 5 per litre for diesel. Had this recommendation been accepted, the present price increase would have been less to the extent of 80 paise in the case of petrol and Re. 1 in the case of diesel. This shows that there is an adequate buffer to shield the domestic consumers from the effects of an international increase in prices, as long as the government and the oil companies take a cut in their revenues.

Another important fact is that even the international fluctuations in the oil prices is not natural but is driven by speculative forces. At the end of 2004, a rumour was spread that OPEC’s capacity to produce cannot meet the present level of demand. And immediately it led to speculation, hoarding and black-marketeering. Letting the domestic prices be controlled by international prices amounts to subjecting the domestic consumer to the vagaries of international speculation. The US war on Iraq also played a major role in raising the international prices. India also has to bear the brunt of the discriminatory attitude of OPEC. Whereas U.S. and European countries do not need to pay any premium to OPEC, many Asian countries including India have to pay 1 $ per barrel as the premium on purchase of oil apart from the price of oil.

In the last instance, the most important question that has to be faced is that can something like oil be left to the mercy of the open market in a country where any increase in the oil prices makes vast numbers even more vulnerable, where the majority is already struggling to survive at the bare minimum levels? Irrespective of the international prices, it is the government’s responsibility to shield the common man from oil price increases. But the unfortunate fact is that the Indian state has become completely servile to the interests of WTO and unless it comes out of WTO, there can be no solution to this problem. The ‘left’ parties are fully aware of this but they too are interested in mere phrase mongering and all their protests are only tokenism. Ultimately it is the people of the country who have to take to the streets to demand that their lives not be cast away at the edifice of imperialist interests and the free market.




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