JOIN USFormer Petroleum Secretary Vivek Rae does not opine that the government should have transferred all the benefits of the oil price fall to the consumers.
“The government needs to keep a cushion against rising prices of oil in the future,” he says.Rae spoke to Deccan Herald’s Annapurna Singh. Excerpts:
Global crude prices are at a six-year low but the government, instead of passing the benefit to the common man, has raised excise duty on petrol and diesel. There were four hikes from November to January. Do you think the government is playing spoilsport?
The government is not playing spoilsport. Excise and customs duties are increased and reduced from time to time according to the need. If you remember, the customs duty on crude was reduced from 5 per cent to nil in 2008 when the global crude prices hit the roof and reached around $140 per barrel.
In the recent past, the government has passed on the benefit to the people of softening crude prices but they also have to maintain a balance between government finances and the interest of the consumer. Oil subsidy bill has risen over the years.
Now is the time to correct that. The government also has to keep a cushion against rising prices of oil in future. When the oil prices start rising once again, the entire burden may not be passed on to the consumer. I, therefore, support the action taken by the government.
But, don’t you think that if the tax component on petrol and diesel were a little less, even the common man would have benefited. The actual price of these fuels would have been much less. Petrol prices in neighbouring Bangladesh, Pakistan and Sri Lanka are less than that of India.
Why are you looking only at petrol prices in the neighbouring countries? Look at the prices of LPG, kerosene, etc. These are much higher in neighbouring countries. In a highly import dependent country like India, prices of petroleum products need to be on par with international prices.
Over and above, the states are charging VAT on the two fuels. Their rates are exorbitant.
State governments are highly dependent on revenue from petroleum products. The right time to impose taxes are when the crude prices are low. It will ensure that the fuel demand does not rise disproportionately due to lower prices. India is a major consuming economy. In China, 50 per cent of GDP is spent on investment. In India, we consume 70 per cent of our GDP. Only 30 per cent is utilised for investment.
The Centre has proposed GST to bring in all indirect taxes in a single net. Why then states should resent on keeping petroleum out of that net? That will burden the common man. They will get taxed at two ends.
That is the government’s call. Negotiations are going on between the Centre and states. The Union government will have to convince the states. In a federal structure, the revenue interests of states also have to be kept in mind.
High fuel prices have a cascading effect on inflationary process. Rise in diesel prices is linked to corresponding rise in transport costs and pricess of essential commodities, vegetables. That will affect the poor.
Inflation is dependent on multiple factors. As I mentioned earlier, the imperatives of the government revenues need to be balanced by the interest of consumers. You need to create jobs, you need to invest in infrastructure.
The government has said it will invest the revenue collected through the increase in excise duty on building roads. I think that is a good policy to boost infrastructure spending, which will benefit the poor on a long term, sustainable basis.