The Hindu Business Line : Passing the oil burden

AFTER MUCH HESITATION the Government has decided to bite the bullet and raise the prices of petrol and diesel while leaving kerosene and LPG untouched. Mindful of Left sensibilities and partly in the hope that the international crude prices would at least stabilise if not decline in real terms, the Government had stayed its hand thus far. But with crude prices showing no signs of abating, the Government could no longer duck the issue. It has tried to put a gloss on it by saying that the burden of higher prices is being shared equitably among the Government, the oil companies and the consumers.

Any notion of sacrifice by the Government would require it to state what percentage of household income can be reasonably abstracted as taxes from a commodity that affects the consumption basket of every household directly and indirectly. If the Government does not want to go into a debate over aspects of public finance policy but would rather confine itself to the levels of taxation, then it should have at least spelt out how much tax would have been collected at the previous year's rates and international prices, and how much of a sacrifice in overall tax revenues it has suffered by way of duty concessions granted this year. Needless to say, no such calculations were presented. Indeed transparency on oil-related tax revenues has been the principal casualty in the ongoing controversy over petroleum product prices.

Until recently, the Government used to speak of an unbearable subsidy burden on LPG and kerosene, cleverly leaving out the money it was also collecting by way of excise duty on the manufacture of these goods and the proportionate Customs duty on crude when such duties were in force on these goods. Such opacity continues even now with the Government having stopped furnishing commodity-wise excise and Customs revenues in the Revenue Budget lest the general public comes to know of the sums collected on petroleum products. Similarly, there has been no reasoned debate on what constitutes a fair return on the capital employed in the oil industry and how far these companies are away from such a norm despite operating at highest efficiency levels. Indeed, the shortfall can be attributed solely to the quasi-administered pricing regime that the PSU oil companies are subjected to. Unless this is spelt out, any talk of shared burden by the oil industry is empty rhetoric.

From a political standpoint, the battle of wits between the ruling alliance and the Left front, which supports the Government from outside, has been ratcheted a notch higher on the contours of the economic agenda for the nation. The Government's decision on raising oil prices despite the Left's opposition comes close on the heels of its decision to go ahead with the public offering of stake in the public sector unit, BHEL, despite opposition from the latter. The spotlight would now be on the Left parties, which face the unenviable task of deciding how much they are willing to trade off a dilution of the economic agenda for the political imperative of sustaining the present Government and keeping the Hindutva forces at bay.

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