By Nantoo Banerjee
The oil price decontrol — at first, the retail prices of petrol by the Manmohan Singh-led government in 2010 and, thereafter, diesel prices by the Narendra Modi-led government in 2015 – to link the local retail market prices with global price trends seems to be meant more to mislead the general public and direct consumers than for any honest purpose. Over the years, it is noticed that retail oil prices are often raised quickly whenever the crude oil prices in the global market firm up. The country is almost 87 percent dependent on imported oil. The retail oil prices are rarely reduced when import prices drop, even over a significant period of time. The prices of petrol and diesel account for the biggest source of tax revenue and levies of the central and state governments. There lies the rub. Very diligently, petroleum has been kept outside the purview of the Goods and Services Tax (GST).
Since the middle of June 2022, the monthly average crude price in the global market has dropped significantly — from $116 per barrel at its peak to $76.8 per barrel now. In fact, international oil prices have slumped to their lowest during the current year. Unfortunately, the government’s so-called retail price decontrol policy is totally disconnected with the market reality. Neither the government, nor the oil companies have made any effort to readjust retail oil prices downward in keeping with the falling import cost of crude oil.
Instead, oil companies are making high profits. And, the tax revenues of the government have remained undisturbed. In practice, the much-hyped oil price decontrol appears to be a big sham. Often retail prices of oil and cooking gas are linked more with elections in the centre and states than with their expected natural linkage with global prices or import costs of crude oil. Officially, the government-controlled public sector oil marketing outfits are responsible for determining the retail prices of petrol and diesel.
Take for instance, the global crude oil (Indian basket) price over a five-year period between 2013 and 2018. While it peaked in January 2013 at US$110, the price went down to US$64 in March 2018. In between, the price dropped to as low as $28 in January 2016. Considering the fact that there was a 42 percent drop in the global crude oil prices over this five-year period, the retail price of petrol in India actually increased by eight percent and the retail price of diesel increased by a whopping 33 percent. This is unthinkable in the era of so-called oil price decontrol linking domestic retail prices with bulk import costs of crude oil while the government does not lose any opportunity to raise the retail prices of petrol and diesel whenever crude oil prices go up in the international market.
The government seems to have totally misled the people about the purpose behind the decontrol of retail petrol and diesel prices. The impression created that retail prices of petrol and diesel in India are linked to the global crude prices would appear to be entirely wrong. In theory, if crude prices fall, as it has been largely the trend since the third quarter of 2022, the retail oil prices should come down too, and vice versa. However, in practice it is not happening. The biggest beneficiaries are the government-controlled oil companies, making fat profits, and the government with its tax revenues remaining intact. The government did cut the petrol and diesel prices by two rupees per litre on March 14, just ahead of the Lok Sabha election. That was purely a political decision. It was hardly linked with the down trend in the global petroleum crude prices. Retail consumers are made to pay much higher prices.
In fact, the government’s oil price decontrol mechanism has further strengthened its hand in controlling retail oil prices. It benefits the government more than consumers. When global oil prices rise, retail oil prices jump up and consumers are made to pay more. When the global prices fall, the government adds taxes and levies on fuel. Consumers and fuel retailers lose out. During the Covid pandemic, when global crude prices crashed, Indian consumers didn’t benefit because state-owned oil retailers stopped revising prices for 82 days. When crude prices partially recovered, the government raised taxes on both petrol and diesel. Even though the government and oil firms, mostly state-owned, are earning well, consumers are still made to pay high fuel prices.
The oil cum gas sector is somewhat like a milch cow for both the central and state governments. It contributes to the government’s tax revenue in a number of ways. They include excise duty on petrol and diesel, customs duty on petroleum products, royalty on crude oil, corporate cum income tax, service tax on petroleum products, cess on crude oil and surcharges. During the first half of the 2024 financial year, the oil and gas sector contributed Rs. 3.41 trillion to the government’s exchequer. This included Rs. 1.85 trillion for the national government and Rs. 1.56 lakh crore for the states. The overall tax revenue from petroleum products has increased significantly for Indian states over the past decade. In 2014-15, states collected Rs 1.37-lakh crore from petroleum taxes, which increased to Rs 2.92-lakh crore in 2023-24. They explain why both the union and state governments prefer high oil prices.
Psychologically, Indian oil consumers will do well by not linking the fall in the global crude prices with the local retail prices. The retail oil market will continue to be strongly regulated by the government in the guise of deregulation. The decision to fix retail oil prices is also political as all ruling parties in the Centre and states stay united when it comes to regulating prices. This clearly explains why they have always been in favour of keeping petroleum outside the purview of the GST. (IPA
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