JUST a day after low-key celebrations on completion of the third year of its second tenure — and importantly after the conclusion of the budget session of parliament — the United Progressive Alliance government took an uncharacteristically bold decision last week of going in for a sharp hike in petrol price.
The three state-owned oil marketing companies — Indian Oil, Bharat Petroleum and Hindustan Petroleum — decided to raise the price of petrol by almost Rs7 a litre, sending retail prices (which include state and other local taxes) to Rs75 (about $1.32) or even more in most parts of India.
The hike, the eighth in about two years, was also the sharpest ever in India. Expectedly, opposition parties raised the pitch against the petrol price hike, staging street demonstrations all over the country. The opposition parties — including the right-wing Hindutva players led by the Bharatiya Janata Party and the communists — have also called for a countrywide general strike on Monday.
The government’s daring move to raise petrol price also sent signals that it would shortly allow the state-owned refiners to hike the price of other highly-subsidised commodities including diesel and liquefied petroleum gas (LPG) and perhaps even kerosene.
While petrol prices have been decontrolled — at least on paper, with oil companies expected to revise the price every fortnight — since June 2010, the price of diesel, LPG and kerosene is still decided by the government. The three oil firms were not allowed to increase petrol prices since January, as crucial elections in five major states including Uttar Pradesh and Punjab were due to be held.
Had the state-owned oil firms gone in for marginal hikes in petrol price — of about Re1 a litre — the public reaction would have been different. However, by refusing to go in for small hikes, the government got itself in an embarrassing position, with the refineries piling up hefty losses. And with the recent slide in the value of the rupee against the US dollar and other major currencies, the oil companies warned of a major catastrophe.
Of course, the petrol price hike is not going to rescue the oil firms. The hefty increase in consumption of diesel is destroying the finances of these firms, who lose about Rs14 on the sale of every litre of diesel.
The oil firms also lose Rs31 on the sale of every litre of kerosene and Rs480 on the sale of every cylinder of LPG. According to the government, the three firms lost a whopping Rs1.5 trillion (about $26.6 billion) on the sale of these three subsidised products, with diesel accounting for about half of it. Though international crude oil prices have stabilised in recent days, the sharp depreciation of the rupee is hurting the oil firms.
According to Namo Narain Meena, minister of state for finance, every rupee fall against the dollar increases the import burden of oil companies by Rs92 billion a year.
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DIESEL in fact is turning out to be the villain of the piece, but for some strange reason government leaders — and even opposition parties — refuse to allow revision in its price. While petrol is used by less affluent — about 85 per cent of petrol cars are small and compact ones — including those riding two-wheelers, diesel is guzzled by expensive cars including sports utility vehicles that are fancied by the rich.
The widening gap between the price of petrol and diesel — there is 75 per cent differential now —is forcing Indian motorists to switch over todiesel vehicles. Even automobile companies are investing billions of rupees in putting up diesel engine plants.
According to industry estimates, the sale of diesel cars has shot up from a mere four per cent of total sales in 2000 to about 50 per cent ten years later. Last year, sale of diesel vehicles shot up by 35 per cent, whereas the sale of petrol cars plunged by 15 per cent. There is now a waiting period of a month or more for diesel cars — with orders for 200,000 vehicles piling up — but petrol cars are available off-the-shelf and with discounts.
The Society of Indian Automobile Manufacturers (SIAM) last week urged the government to hike diesel prices to bring parity between the two fuels. We request the government to reconsider its proposal for such a steep increase in the price of petrol and to seriously consider the option of a moderate increase in the price of diesel before it impacts the growth of the industry,” noted SIAM.
According to the industry body, the pricing difference “is leading to a long chain of distortions, which will lead to sub-optimal use of resources (meant for petrol vehicles) unless appropriate market oriented policies are put in place. The need of the hour is to bite the bullet by reducing the price hike on petrol and revising the price of diesel, which will bring in more revenue to government as well as some level of parity between the two competing fuels for automotive industry.”
State governments can also cushion the additional burden by lowering sales tax or value-added tax (VAT) on petrol and diesel. Local taxes vary across different states in India. In Andhra Pradesh, for instance, it is a high 33 per cent, whereas in Goa it is just one per cent. After last week’s hike, the governments of Uttarakhand and Kerala announced they were waiving off VAT on the additional increase in petrol prices.
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DESPITE all the noise made by the opposition parties, the successive hikes in petrol prices have not really led to a fall in the sale of cars or the usage of vehicles. Traffic congestion in most Indian cities — notably Mumbai, Bangalore and Delhi — continue to worsen despite new flyovers, expressways and elevated roads being built.
In 1998, when the BJP-led National Democratic Alliance (NDA) came to power, petrol was being sold at around Rs23 a litre. Six years later when it was voted out of power, the price of petrol had gone up to Rs34 a litre.
According to Pranab Mukherjee, the finance minister, crude oil prices during the NDA regime (1998-2004) hovered between $24 and $36 a barrel. Today, crude oil prices fluctuate between $110 and $125 a barrel.
Surprisingly, most politicians who are demanding a roll-back in the price of petrol — and are not letting the government hike diesel prices — are the least concerned about conservation of this scarce resource. India imports almost 80 per cent of its crude oil requirements, but effortsto conserve it are negligible.
In fact, most ministers and bureaucrats — both at the centre and in the states — demand new cars every few years, imposing additional strains on the exchequer. Lawmakers who are at the forefront of the agitation against a fuel hike whiz around in SUVs and other high-powered vehicles.
Last week, MPs from all parties brought pressure on the government, demanding cars fitted with red beacons in Delhi for their use. They claim that as representatives of people they need such privileges, especially when even an additional district magistrate is entitled for the red beacon.
However, though backed by the Congress and opposition, Sonia Gandhi, the Congress president and UPA chairperson, shot down the proposal.
Though the Indian parliament — and most state legislatures and civic bodies in major cities — provide for free public transport for lawmakers, most of these coaches are rarely used by the people’s representatives, who prefer travelling in style in their own vehicles. But when it comes to rational economic decisions — such as slashing wasteful subsidies on fuel — they are the first to lead demonstrations,blocking traffic and getting photographed.
Ironically, the India bandh that has been called for Monday will basically hit the poor including daily wage earners, factory and farm workers and others in the unorganised sector, who can never ever dream of owning a vehicle, petrol or diesel fuelled.