BJP vs Congress: The shoe on the other foot now

“Massive hike in petrol prices is a prime example of the failure of the Congress-led UPA. This will put a burden of hundreds of crores of rupees in Gujarat”, the then Gujarat Chief Minister Narendra Modi said in May 2011 when petrol was retailing at Rs 73.18 per litre. Presently Union minister, Smriti Irani’s numerous protests on fuel price hike between 2011 and 2014 have been making a comeback on social media platforms again, especially dug out by Congress and other opposition parties.

The virtual world can be ruthless as old tweets and videos about BJP leaders’ relentless rants against the UPA over fuel price hike have come to haunt them at a time when petrol prices have crossed the Rs 100 per litre mark in several parts of the country. Top BJP leaders had showered the choicest epithets – insensitive, unsympathetic, arrogant – on the UPA government to whip up a public frenzy against, which eventually brought them to power. Mukhtar Abbas Naqvi, then a BJP spokesperson, even famously declared in 2013 that a future Modi government would rein in price rise within a month of assuming office.

Also read: High fuel prices: What is the solution?

The shoe is clearly on the other foot now and BJP leaders are learning it the hard way as they find themselves facing similar allegations from the Congress and other opposition parties. Fuel prices have been the Achilles heel of every government and successive finance ministers have struggled to strike a fine balance between the rate at which it buys crude from international markets and the retail prices for domestic consumers. The BJP’s protests against the fuel price hikes during the UPA years was also the time when international crude prices were ruling over $100 per barrel and had even crossed the $140-per-barrel mark.

Since the Modi government came to power in 2014, international crude prices had been low but consumers rarely benefited from it - retail prices continued to remain around the same level as the UPA years. The government chose to boost its revenues from petroleum products, instead of passing on the benefits of lower international prices to consumers. The Modi government’s strong pitch that the monies were being utilised to develop a network of highways and other projects of public good appeared to have found acceptance with the electorate.

The lower crude prices also gave the Modi government enough elbow room to abolish the administered price mechanism (APM) for diesel in October 2014, which was hailed by economists as a key reform measure. The deregulation of the prices of petrol was done by the UPA-II government in 2010. This shows the bi-partisan support for reforms in the oil sector. The Modi government went a step further in 2017 and linked daily sales of fuel to the international prices of crude oil, allowing oil marketing companies to pass on the increase or decrease in oil prices to consumers.

However, as global crude prices hit rock bottom – as low as $19.90 a barrel in April last year, the consumers did not experience the benefits of the fall as both Centre and the states increased taxes on the fuel. As retail prices continued on the upward trajectory, the oil marketing companies, apparently after a nudge by the government, de-linked the fuel prices from the international crude prices and held them steady at February 23 rates ahead of the assembly elections. The oil marketing companies even absorbed some losses till the election results were declared on May 2.

Oil bonds

The oil marketing companies and the government have insisted that there was no correlation between elections and the freeze on fuel prices, particularly since the APM was abolished and prices were directly linked to international oil prices. Pushed to the corner once again on rising fuel prices, the BJP government contended that the increase in fuel prices was a result of the maturing oil bonds to the tune of Rs 1.4 lakh crore issued by the UPA government between 2005 and 2010 to keep fuel prices steady and way below international prices.

Oil bonds to the tune of Rs 10,000 crore are maturing this fiscal and the government will have to make provisions to honour the same, which could strain the exchequer. “The increased prices of petrol and diesel is a legacy of UPA’s mismanagement. We are paying for the oil bonds that will come up for redemption…issued by UPA to oil companies for not increasing retail prices then,” BJP IT Cell chief Amit Malviya said.

Also read: In dig at Centre, opposition leaders share Vajpayee's 1973 petrol price hike protest video

The BJP had raised the issue of oil bonds even in 2018 when the retail prices of petrol and diesel were higher than the global oil prices, squarely blaming the high prices on the “sins of the UPA”. The opposition and the BJP have also indulged in shadow boxing over bringing prices of petroleum products under GST, which could lower the taxes significantly. However, neither the Centre nor the states are willing to let go of an assured revenue stream, particularly at a time when Covid-19 has hit the economy hard.

Moreover, the Centre and the states will have to generate new sources of revenue to offset the shortfall if they ever decide to slash taxes and cess levied on petroleum products. The rising prices of fuel have once again given the opposition ammunition to target the Modi government. Congress leaders have been wondering whether the next freeze over fuel prices could be around assembly elections next year. However, the protests by the Opposition over fuel prices have largely been confined to virtual space and are yet to spill onto the streets as seen during the UPA years.

The ongoing pandemic too has forced people to remain indoors, which could be a reason for the subdued response to the high fuel prices that have already crossed Rs 100 per litre. The rising global crude prices will also put the reforms of abolishment of the APM and linking retail prices to daily crude prices to test. While the opposition parties have stepped up protests on the steep taxes on petroleum products, the jury is still out whether the government would hold its nerves or whether the consumer will display resilience to adapt to the changed scenario.