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Raghuvir Srinivasan

The telecom market has turned into a buyer's one with service providers elbowing one another for the consumer's ears while the petroleum market remains firmly in the hands of the sellers.

TELECOM and petroleum — they are two industries that have been the focus of intense reforms in recent years. Yet, for a consumer, they could not present a more contrasting picture today. The telecom sector — basic and cellular — is characterised by intense competition with tariffs falling across the board and consumers being wooed with attractive packages and value-added services.

In the petroleum industry though, the competitive environment remains the same and for consumers, retail prices have increased and not decreased as in telecom. The telecom market has turned into a buyer's one with service providers elbowing one another for the consumer's ears while the petroleum market firmly remains in the hands of the sellers.Have you ever tried to understand this contrast that exists despite the fact that both industries are supposedly deregulated and out of government control? How is it that while speaking to your loved one in the US is cheaper by half now, you pay double the price to fill up your petrol tank?

Of course, it is true that oil prices dance to international tunes and there is little that domestic oil companies can do when crude oil prices shoot through the roof. Having said that, it should be pointed out that the government is also responsible for the relatively higher prices of petrol and diesel today. It happens in two ways, one of which is direct while the other indirect. Do you know that of the Rs 33-35 that you pay per litre of petrol, as much as 50-60 per cent is taxes and duties? There is a 30 per cent excise duty (approx. Rs 4.50 per litre), an additional duty of Rs 7.50 and sales tax of 20-30 per cent depending on the State which adds another Rs 5-8 per litre. Remember, the absolute amount of excise duty and sales tax increase when the basic price rises, as they are ad valorem rates. Thus, a basic price of around Rs 16 per litre of petrol ballons to Rs 35. Effectively, for every litre of petrol that you buy, you pay for another litre to the government!

Granted, transportation fuels suffer heavy taxation even in the developed countries. Yet, even by those standards, the tax structure in India is on the higher side. For example, in the US taxes account for just 25 per cent of the cost per gallon of gasoline.

Meanwhile, despite the so-called decontrol, the Government still influences the retail pricing strategies of the oil companies. For its own reasons, it has not carried the reform process forward to its logical end where oil companies should be pricing their products in line with the market trends.

Just one example would suffice here. Logically, consumers in coastal locations should be paying less for fuel compared to their counterparts in the interior areas that are far away from refineries.

This happens because transportation costs are either non-existent or lower on the coast compared to the interior markets. Yet, consumers pay a uniform price across the country with the difference in prices across States arising only due to local taxes. This is because oil companies normalise transportation costs across all markets; in short, a consumer in Chennai or Mumbai subsidises the cost of fuel for one in, say, Nagpur or Hyderabad. This should not happen in a free market.

Besides this, the Government's policy on subsidy for LPG and kerosene is also responsible for the skewed picture. The subsidy on the two products have been capped by the Government at prices relative to the levels of $20 per barrel of crude, which prevailed in February last.

Since then, crude oil prices have shot past the $30 mark but the government has not increased the subsidy in tune with the rise in oil prices. So, who pays for this subsidy? The oil companies which in turn pass it on to you and me, the consumers, through petrol and diesel prices.

The Government is fortunate that there is as yet no serious competition from private players in the retail market. Telecom service tariffs began to drop only after the advent of private players such as Bharti and the Tatas. Such a thing has not happened yet in oil retailing despite private licences given to Reliance Industries and Shell.

Once private players enter, the Government may no longer be able to play the subsidy game and will have to give in to market forces. Ultimately, it is competition that secures the best deals for you and me, the consumers.

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