Fuel Pricing : Carries heartless foul play in its trail


The price of petrol has crossed Rs.80. On some days, the diesel price even overtakes the petrol price. As on 1 July 2020, in a span of 22 days, the price of petrol has increased by Rs 9.17 per litre while the diesel price has gone up by Rs 11.4 per litre. When Covid 19 pandemic is posing grave danger to health and life of the 95% of our countrymen who are devastated because of the prolonged lockdown, any civilized government would have come forward to give them some relief in whatsoever way possible. But India’s is a different story. Here the government is busy giving one after another stunt to hoodwink the immensely suffering people and divert their attention from the real issues. We have already exposed in the pages of Proletarian Era the treacherous hollowness of so called Rs 20 trillion rescue package. Even the recent declaration of providing free rice/wheat and pulses to 80 crore odd countrymen upto next November is another hoax. Is it that the government is doing something ‘extraordinary’, showing its magnanimity or distributing gratis? Or, it is incumbent on any civilized government to take care of the distressed people at the hour of need or crisis? But while the government is pretending to dole out benefits with one hand, it is extracting much more from the misery-stricken citizens with the other hand. One classic example is monstrous fiscal savagery in the form of astronomical rise in the retail prices of petrol-diesel-LPG and even kerosene on a daily basis,  cascading effect of which is destined to spark higher prices of every essential commodity and rise in transport cost. But, the BJP-led central government is vulgarly apathetic to the enormous suffering of the common people. Instead of taking immediate measure to stem this price spiral, the ruling party leaders, ministers as well as a bunch of bourgeois economists-columnists on their pay-roll are busy providing ‘economic logic’ to this wanton fleecing and squeezing. Just before clamping Covid 19-induced lockdown on 24 March 2020, the BJP government amended the law to arrogate to itself arbitrary power to increase excise duty on petrol and diesel. That cleared the way, uncorked the demon! Following it, upward run of petrol diesel prices has been so mind-boggling that as on 29 June last, fuel prices were hiked 22 times in just over 3 weeks.  Defending the unbridled hike in fuel prices amid nationwide protest, the Union BJP Petroleum Minister said that the nation and global economies were going through a challenging time and this crisis has impacted the demand and supply of fuel across the world. He then hastened to add that money being collected through taxes on fuel was being spent on health, employment and economic security in the country. Earlier, in July 2019, he justified raising fuel tariff by saying that funds were required for developmental activity in the country as if it is was an ‘economic compulsion’ to squeeze the pauperized toling masses more and more and shower avalanche of fiscal and other benefits including large scale tax waivers and concessions to the rich.  All this makes it necessary to expose the secrets behind such harrowing price spiral of retail fuel tariff.

Deregulation of petrol diesel retail tariff

It is pertinent to revisit history of fuel pricing mechanism in India. Petrol-prices were administratively monitored and decided by the government till 2010. But then, in June 2010, the erstwhile  Congress-led UPA government  deregulated petrol prices. It was argued that prices would henceforth be market-driven complying with the prescripts of globalization-liberalization. If international crude price goes up, retail price would also move upwards. Similarly, if price of crude plummets, retail tariff would also come down proportionately.  Such was the promise. Then, immediately after ascending to power, the BJP government extended the same policy, deregulated diesel prices and increased natural gas prices in the name of “business-friendly” reforms.  Subsequently, on the pretext of ‘meeting the needs of market-driven economy’, the BJP government announced that from 16 June 2017, petrol-diesel prices would be revised on daily basis. It ensured that benefit of even the smallest change in international oil prices accrued down the line to the dealers and the consumers. But, the people of India received no such benefits. Instead, the BJP government was reported to have added to the exchequer a sum of over Rs10 lakh crore earned from levies on petrol and diesel between 2014-15 and 2018-19 by way of increasing central excise duty on diesel and petrol by more than 380%, and 120% respectively over the last three years. Moreover, one of the longest global oil gluts in 2015-16 allowed the Indian government to save close to Rs 1.50 lakh crore. So, the promise of passing on the benefits of fall in international crude price to common people has been proved to be damp squib.

In fact, the Indian Crude basket is used as an indicator of the price of crude imports in India. It is one of the elements supposed to be taken into account while deciding retail fuel tariff. Some like to call it a benchmark. But, it has been found that when the international crude price goes up, the government cites that factor for increasing retail fuel price. But if the international crude price dips, that factor is simply ignored so that the corresponding due reduction in retail price does not take place to pass on the benefits to the consumers.

Current saga of unprecedented hike

This is further attested by the latest upswing of fuel prices on an unprecedented scale. By repeating the time-tested formula of not passing on gains arising from a slump in global oil prices, the BJP government further hiked excise duty on petrol and diesel by a record margin of Rs 10 and Rs 13 per litre respectively in May last amidst lockdown. Special additional excise duty on petrol was increased by Rs 2 per litre and road cess was hiked by Rs 8 a litre. In case of diesel, special additional excise duty was hiked by Rs 5 per litre and road cess raised by Rs 8 per litre. With this, the total incidence of excise duty on petrol rose to Rs 32.98 per litre and that on diesel to Rs 31.83. Alongside, as many as 13 states announced a hike in their own fuel taxes as this is an easy route to augment revenue collection. It is reported that the central government is poised to garner an additional revenue of Rs 1.6 lakh crore by this additional taxation.

Official quarters claimed that retail prices of petrol and diesel would not be impacted by the tax changes as state-owned oil firms would adjust them against the recent fall in oil prices. Once again, it was a bluff. When the former Congress government deregulated petrol price, it argued that such was urgently needed to stem the bleeding losses incurred by the public sector oil companies because of rise in the international crude price.  Even the loss figure was put at about Rs.2,45,000 crore which the government stated it could not compensate by way of subsidy. As we had explained earlier in Proletarian Era, ‘under-recovery’ was being highlighted as outright loss and hence it was a distortion of truth. ‘Under-recovery’ is no real a term but just a notional sum. Just to present simply: India imports crude oil from outside and gets it refined in the country. Let us suppose that the sale price of refined oil in the international market is Rs 100 per litre. But since refining cost in India is much lower, even after keeping the same margin of profit as in the international market, the refined oil is sold at Rs 70 per litre in the domestic market. So, the opportunity to earn Rs 30 (100-70) represents ‘under-recovery’. Why should such an imaginary loss be compensated by  extracting higher price from the wretched countrymen? But the BJP also has been traversing the same way allowing the oil companies to gain during fall in international crude price and then raise the retail tariff disproportionately, if not arbitrarily, when the international crude recovers a bit from the dip. Moreover, though, theoretically, oil pricing is decentralized, the invisible hand of the government is not hidden. That is why,  after maintaining silence for 82 days, the oil companies suddenly began raising petrol-diesel prices from 7 June last so much so that the government could mop up Rs 44,000 crores in just 8 days as additional revenue from raised excise duty and cess. It meant that holding onto the price for 82 days was a politically calculated move which showed how farcical is the show of deregulation. In fact the government continues to pull the strings from behind. It is worth recalling that fuel prices were frozen for 19 days in the run-up to the Karnataka polls in May 2018 despite fluctuations in the international crude market. It was because “political interest’ of the ruling BJP dwarfed the so called “economic compulsion’. Once the elections were over, steep rise in petrol-diesel prices corroborated this truth in no uncertain a term. Besides public sector oil marketing companies, Reliance group which reportedly increased its marketshare of fuel retailing to 12% in 2019 also stood to gain. Same is the case now. So whether it is Congress or BJP, policy directive is the same—rob the poor to swell the coffers of the state wedded to serve bourgeoisie class interest and the monopoly houses.

Arithmetic of oil pricing

Let us have a quick glance at the arithmetic of fuel pricing. At present, one barrel (159.3 litres) of crude oil costs around Rs 2,905 (assuming crude price being $40 and $1=Rs 72.62) . So per litre it is Rs.18.23. The refining cost comes to Rs.6.10. Including transportation, the actual cost of 1 litre of petrol would be around Rs.28. If dealers’ commission of Rs 3.50 is added, it becomes Rs 31.50.  But then why has the retail price of petrol exceeded Rs 80? Because the balance amount represents taxes and cess imposed by the central and state governments. This means that people are paying almost 269% as tax, VAT, cess etc. to the central and state governments. Moreover, 5 to 6% of Ethanol is mixed with petrol as part of government policy. We are  buying this Ethanol also  at petroleum price. Incidentally, while all other sectors are covered by GST, petrol-diesel are kept out of its purview and are still subject to excise duty. So, the boastful announcement of “one nation, one tax’ by the BJP government to justify GST is a travesty of truth.  Why is petrol-diesel left out of GST? Because, as per the ‘experts’ belonging to the establishment, 40% of central revenue comes from oil which accounts for 60% of our imports. So, if duty is cut, not only would revenue collection be lower but domestic consumption would also be boosted entailing increase in oil imports and thus causing trade imbalance. What could be a better ‘impeccable argument’ from the stable of the ruling circles!  It does not matter if people are pushed to the precipice of total ruination. But taxes cannot be reduced. Compared to India, current retail petrol prices in neighbouring Pakistan, Bangladesh, Nepal, Myanmar and Sri Lanka are hovering around 26, 22, 34, 30 and 34 respectively in terms of Indian rupees. All these countries import oil. Is it then to be believed that the capitalist rulers of these countries are so foolish as to forego such an easy way to shore up revenue? Or,  are they not that ruthless and heartless to burden their respective countrymen  to the extent their Indian counter-parts are doing ? The answer would go abegging. 

 Why does India need to import oil so heavily?

Today our country has reached a situation where it has to import about 85% of its petroleum needs. But, why? Is it out of compulsion or by design? In the seventies, about 70% of the domestic need used to be produced within the country. But today, the country is in so deplorable condition as to import 85% of its oil needs through multinational companies including Reliance. This means with respect to domestic demand, percentage of domestic production is getting reduced in direct proportion to the increasing percentage of import-dependence. And this trend is increasing day by day. Long back the oil exploration and mining was carried out under the leadership of Oil and Natural Gas Commission (ONGC), a public sector undertaking, and it made big gains till 1991. India was in a position to produce up to 40 % of its oil needs. But with the globalization-liberalization on roll, this system was dismantled. Instead, 23 oil producing blocks were handed over to national and foreign multinationals by 1996. If it were, otherwise, India could have attained self-sufficiency through ONGC.  Alongside went on a skillful exercise to weaken ONGC and Oil India. As a result, domestic exploration and refining of oil under the aegis of the government had slowed down. In 1996, the budgetary allocation towards new oil field exploration was drastically reduced by Rs 1100 cores. The same policy continued notwithstanding periodic change of ruling party in the central government. The combined effect of all such measures caused a significant decline in domestic oil production and increased import-dependence. The scenario remains the same even during the BJP’s full-throat ‘Make in India’ campaign! So, the logic of helplessness before fluctuation of international crude market holds no ground. The position India is in today is no handiwork of the international market but outcome of a deliberate policy — the policy of allowing the oil companies and oil barons to net huge profit by bringing down domestic production.

Handing over of oil sector to private monopolists would further push up prices

Further note is to be taken of the fact that out of the total installed refining capacity of 249 Million metric tonnes per year (MMTPA) in India, monopoly giants like Reliance and Essar groups owns 60 MMTPA at Jamnagar Refinery and Nayara Energy Refinery, respectively. Now, the BJP government  has announced privatization of state-owned BPCL as well as HPCL. Once that happens, retail fuel tariff  will be controlled by the oil barons and multinational companies (MNCs). Right at this moment, Mukesh Ambani-owned Reliance petroleum own the largest refineries in India. Of late, BP  (former British Petroleum Company), a giant  oil and gas MNC has floated a joint venture with Reliance to make foray into Indian domestic retail fuel market. At present, Reliance has 1400 petrol pumps. The new joint venture proposes to augment the number to 5500 in five years. Also they want to extend supply from 30 airports at present to 45. So, the policy directive of more and more privatization is going to benefit Reliance in a big way. And more the oil sector is in the grip of the monopoly sharks and MNCs, more escalated will be prices of petrol-diesel to serve their objective of profit maximization. 

Where is the specially constituted ‘oil fund’?

It is pertinent to mention that way back in 1975 the government set up the mechanism of oil pool account. This was to safeguard the price in the national market from the fluctuations in the international market and  supply oil and oil products throughout the country at a uniform price Till 1989, this account always ran in surplus to the tune of  Rs 8,900 crores. If accrued interest is taken into account, the fund could have been somewhere around Rs 85 to 90 thousand crores. But, instead of using this fund for the declared objective, successive governments from 1989 onwards indulged in a slew of manipulations to use it for financing budget deficits. Secondly, right from 1975, the central government in the name of developing oil industry began imposing a special cess on domestic oil production. The resource raised by the central government on this account reportedly stood at around Rs 1 lakh crore of rupees including interest way back in 2008. What happened to that fund? Is it that the successive central governments have usurped the money violating all norms and regulations? 

False argument that petrol diesel price rise only affects the rich

Not feeling any qualm in offering weird justification of a wrongful act, the Union BJP Petroleum Minister has said that “the rising prices of petrol and diesel have not impacted the common man”. Who does not know that fuel being a critical input for any economy, any rise in its price has a cascading effect, which means it triggers increase in prices of a host of other goods and services – thus leading to greater inflation across the economy? If prices of essential commodities, transportation cost, cost of running of diesel-based shallow pumps for irrigation etc. go up, how can common people remain unscathed? Moreover, alongside petrol-diesel, price of cooking gas has also shot up. Most importantly, the government has, of late, raised price of kerosene by 55%. Are these steps taken out of ‘empathy for the suffering million’ or ‘meeting the challenge of rescuing a sinking national economy’? The petroleum minister also claimed in the same breath that they have provided Rs. 1,70,000 crore under several schemes for poor and farmers under the ‘Pradhan Mantri Garib Kalyan Scheme’. But what he has not said is that his government has foregone a revenue of Rs.1,46,000 crores in 2019 because of drastic cut in corporate tax. When a group of Indian Revenue Service (IRS) officers suggested in a report to raise the highest tax rate to 40 per cent for people with annual income above 10 million rupees or to impose a wealth tax on those with net worth of Rs 5 crore or more and  one-time Covid relief tax of 4 per cent for individuals with taxable income of more than 10 lakh rupees. to increase revenues amid the coronavirus pandemic,  they were served show cause notice by the Central Board of Direct taxes (CBDT). The government also brushed off the proposal exposing its anti-poor pro-rich character.

And when people are thus made subject to fiscal savagery at a time their life and livelihood is under threat, both from Covid 19 infection as well as prolonged economic recession further aggravated by sudden clamping of lockdown, the economists-columnists on the pay roll of the ruing monopolists are shamelessly supporting monstrous rise in fuel prices and cuts in subsidy. “The Covid crisis is a good time to enact painful reforms. More rational and politically courageous is the abolition of once-sacred subsidies plus higher taxation of petroleum products…… The bulk of subsidised kerosene was diverted to adulterate diesel and petrol,.. (so) kerosene subsidy has also been quietly ended… Kudos to the government.” (S A Aiyer in Times of India 05-07-20) How would these self-styled pedants be viewed by the suffering common people? Ignorant or motivated or sickening sycophants? 

People’s rise in conscious protest— only deterrent

The above discussion clearly reveals that there is no cogent reason whatsoever to increase price of petrol-diesel in the domestic market as none of the arguments put forth in support of the hike price is based on fact or logic.  If the capitalists, corporate bigwigs, their servitor governments and political agents have unbridled right to fleece and squeeze the oppressed common people by giving cooked up reasons, the latter also have every right to protest against the unjust moves and policies wreaking havoc in their lives. The bootlickers of the ruling class masquerading themselves as experts, columnists and commentators should also know that when the people rise in rebellion, those who are shamelessly holding brief for the ruthless exploiters today do not escape unscathed. It is only a conscious concerted move on the part of the people that can expose this vile conspiracy of the vested interest and their lackeys.

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