Crude policy: When Centre manipulates fuel price at public expense

People demand answers to these six questions to know why petrol and diesel prices in India are at record highs: 1) Is it because international crude prices are high? 2) Has the dollar price increased steeply, whereby more rupees have to be spent to buy the same amount of crude? 3) Are the oil marketing companies in huge losses that they have to make up? 4) Is government untenably burdened with a high petroleum subsidy whereby it wants to ease the burden through oil price hikes? 5) Or is it that the price is being determined by the market fairly and so the government has no role to play in it and so remains silent both when the prices go unreasonably up nor when they do not come down when international prices fall? 6) Wasn’t this the party (BJP) which vehemently opposed fuel price hikes during the UPA government when international crude prices were actually sky high (unlike now when it is half of what it was in 2013) and wasn’t it Narendra Modi who promised that if he came to power, fuel prices would be dirt-cheap?

For sure, the government cannot answer ‘yes’ to any of those questions. There is enough evidence to refute any such claims, one by one.

First, while petrol and diesel prices have hit close to Rs 100 a litre in some states, international crude prices are nowhere near any record highs to justify that. Therefore, the present fuel prices and continuous hikes cannot be justified by citing high import prices. The Indian basket of crude cost $54.79 per barrel (about 159 litres) in January 2021 when petrol was being sold at Rs 86.34 a litre in Delhi. In September 2013, by which time the fuel was being sold at nearly market price under the UPA government, international crude price was $111.59 per barrel, or more than double today’s level, and yet petrol in Delhi cost Rs 76.06.

OK, then is it because the dollar exchange rate is higher than before, making crude imports costlier in rupee terms? No. Crude import price was Rs 46.94 per litre when the rupee-dollar exchange rate was Rs 66.89 in 2013, whereas in January 2021, the exchange rate was Rs 72.90 and crude cost at that rate was Rs 25.12 per litre.

So, are the fuel prices high and being hiked every day to make up for the losses suffered by the oil marketing companies (OMCs)? No. The OMCs are not making any loss. The Petroleum and Natural Gas (PNG) ministry statistics confirm that beyond any doubt. All the CPSEs under the PNG ministry earned a combined Profit After Tax of Rs 69,714 crore in 2018-19; and their profits have risen constantly to this level over the last seven years -- from Rs 39,419 crore in 2012-13.

Is the government burdened with paying subsidies to the OMCs? No. Rather, revenues to the Centre and states have risen continually from 2012-13 to 2018-19. As per the 2018-19 provisional figures, the states and the Centre received: (i) Royalty from crude oil of Rs 16,964 crore; (ii) Royalty from gas Rs 2,364 crore; (iii) Oil Development Cess Rs 18,984 crore; (iv) Excise & Custom duties Rs 1,63,162 crore; (v) Sales Tax Rs 2,01,265 crore, and (vi) Dividend Rs 30,323 crore. All this amounts to Rs 4,33,062 crore – a single-year revenue.

The subsequent revised figures have shown a still higher amount of Rs 5,75,632 crore that year, of which the Centre’s share was Rs 3,48,041 crore, equal to 22% of its revenue receipts. The remaining Rs 2,27,591 crore went to the states, which was equal to 8% of their revenue receipts. That year, the Centre’s actual subsidy to the petroleum sector, as per the Budget document, was Rs 24,837 crore, which equals 7.13% of what it receives from the sector. This means that the government doesn’t give, rather it takes a lot from the industry.

The total government subsidy -- for fertilisers, food and fuel combined -- was Rs 1,96,769 crore. It was 56.53% of central petroleum revenues and 34.18% of the total petroleum sector’s revenue. Clearly, this sector alone meets the entire subsidy burden of the Centre. So, it is wrong to say that the government is bearing the burden of subsidy to the sector.

The fifth assumption is that the high fuel prices are the making of market forces and that government is helpless. That’s not true. It could halt the price hikes during the previous election season though international crude prices were going up at the time.

What’s more, the government can reduce the price by reducing taxes and cesses if it wants to. The BJP had protested inside and outside Parliament when the UPA hiked prices.

Imports burden and exports boon

True, India depends heavily – up to 85% -- on imports for its petroleum needs; it produced only 32.2 MMT of crude in 2019-20 against consumption of 214.1 MMT that year. Yet, that is no justification for the current price level and hike.

Imports are a burden, but India also exports petroleum products. In 2019-20, India imported and refined 48.8 MMT crude more than was domestically required, and it exported this for $38.8 billion (11.4% of its gross exports value). The import bill of POL (Petroleum, Oil and Lubricants) that year was $119.1 billion, equal to 25% of India’s gross imports.

So, while thinking of the costs, the export earnings and the domestic production of crude should also be factored in, not just the crude import cost. A democratic government should be transparent enough to share all the details with the people, rather than scaring them with misleading information and assertions and blaming previous governments going back all the way to Nehru for today’s prices.

Also, the government should share with the people the profits it makes in different modes – tax and non-tax – by keeping the prices of essential commodities within specified bounds. No profiteering at the cost of public interest, please.

(The writer is an economist and commentator on economic and social affairs)