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Chidambaram Wants Modi To Become A Magician​, Cut Petrol Price By Rs 25

Chidambaram Wants Modi To Become A Magician​, Cut Petrol Price By Rs 25
Chidambaram Wants Modi To Become A Magician​, Cut Petrol Price By Rs 25
outlookindia.com
2018-05-28T15:54:18+0530

Under UPA, when crude oil prices averaged $132 per barrel in July 2008 (it was during that month Brent reached a historic high of $147/b) petrol price was just Rs. 50.62 per liter. Today when oil price is around $80/b, petrol price has reached a high of Rs. 78.27 per liter in Delhi. On the surface it looks like Modi has been citizen unfriendly.

As a thought experiment, we can try to compute what would have been the petrol price today if by some magical forces, exchange rate in 2018 would have been the same as it was in 2008 when one US dollar was equal to Rs. 43 versus the current rate of Rs. 68. If we maintain all other parameters like central duty, state VAT and dealer margins the same petrol price would have been today Rs. 64 per litre considerably less than the current Delhi price of Rs. 78.27 per litre. 

A natural question to be raised is when international prices have fallen (by $52/b, 2008 versus 2018), petrol prices in India should also fall. Instead it has not. It is this comparison which must have inspired former finance minister to tweet that Modi can easily cut petrol price by Rs. 25. However when we analyze the factors behind the petrol price movement, one will be shocked and wonder how a responsible leader can mislead the country. 

NDA was lucky that soon after it came to power oil prices fell. It wisely decided not to pass on all the benefits to consumers. It increased excise taxes on petrol in small doses from Rs. 9.48 per litre to current rate of Rs. 19.48 per litre and for diesel from Rs. 3.56 per litre to 15.33 per litre. 

Former finance minister P. Chidambaram must be familiar that under his government policy the public sector oil companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) were bleeding. He must also be knowing that their irrational pricing policies forced private sector oil companies like Reliance, Essar, and Shell to close down thousands of their petrol stations. Their stations were far more efficient than the ones operated by the public sector giants. In addition, the so called “under recoveries” (in simple term losses) by the public sector companies were reaching stratosphere. In 2012-13 under recoveries of public sector oil companies was a mind boggling Rs. 1.6 trillion. 

One more comparison should convince how NDA’s policy was far more progressive than the populist policy of UPA. While NDA succeeded in collecting additional revenues of Rs. 4.4 trillions during its four year rule, UPA incurred a loss of Rs. 4.3 by selling petrol and diesel below cost between 2005/06 to 2014/15. Who are the real beneficiaries of different policies of NDA and UPA?

UPA’s munificence (selling fuels below cost) mostly helped the middle class and the rich. It also increased fiscal deficit resulting in higher inflation which harmed the poor. NDA’s policy of not passing the benefits of lower crude oil price (by imposing additional excise taxes) helped them to finance various welfare measures, reduce fiscal deficit and check the inflation. 

I am sure former finance minister must be fully aware of these facts. As suggested by Mr. Chidambaram, NDA can reduce excise taxes by Rs 10 and revert back to the level of UPA. What will then happen to fiscal deficit? Where will Modi find the additional Rs. 15 to cut?. Is he expecting Modi to force oil companies to lose or ask states to reduce their VAT or act as a magician?


(The writer is an energy expert and activist. Views are personal)

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