The Hindu : Opinion / Editorials : An avoidable burden

Online edition of India's National Newspaper
Wednesday, Jun 22, 2005

Opinion

Opinion - Editorials

An avoidable burden

The Government's decision to raise the retail prices of petrol and diesel by Rs.2.50 and Rs.2 a litre respectively has run into a controversy with major political parties and consumer groups opposing the move. The last price revision was in November 2004. Since then global oil prices have belied expectations of remaining stable, even at much higher levels than consumers were used to. On Monday when the hike in prices was announced, oil was trading at an unprecedented $59 a barrel in global markets. With even the medium term outlook remaining bleak, an oil importing country such as India has very few options to influence the supply side. Even those who oppose the latest hike are agreed that the burden has to be shared by all those affected, the Government, the oil companies (both refiners and marketing companies), and the consumers. However, this time the major point of contention is whether by increasing the prices of transportation fuels while keeping those of cooking fuels unchanged, the Government has distributed the burden equitably as claimed by Petroleum Minister Mani Shankar Aiyar. From Tuesday consumers in most parts of the country ended up paying for their petrol and diesel much more than what the Government's announcement would indicate. State Governments regard the oil sector as a milch cow and State taxes add to the increase. The biggest worry is that the cascading effect of the price rise will directly and indirectly stoke inflation, which for the moment seems to be under control. Managing inflationary pressures is going to be a challenging task.

It is unfortunate that the Government has failed to look at sensible alternatives suggested by experts and political parties before hiking the retail prices. While the oil sector has borne the burden of global oil prices in the past, the impact within it has been uneven. Refiners have seen their margins and hence their profits surge in line with global oil prices. Marketing companies, however, have taken a hit. There is a strong case to benchmark prices at the refining stage against the international price parity of crude rather than against the prices of specific petroleum products. After all, refining costs are lower in India. The Government should have persisted with its attempts to lower the tax burden on petroleum products. Equally importantly, it should make the whole exercise transparent. The last budget, acting upon a long-standing recommendation of experts, tried to move towards a specific duty structure from the existing ad valorem one so as to avoid a cascading effect. However, the exercise that lowered customs duties but increased excise selectively did not lessen the tax incidence on consumers. The retail prices of petrol and diesel actually went up after the budget. The tax component in the final prices of petroleum products is very high and adjustments in the tax rates of both the Centre and the States can cushion the effect of the rise in international prices.

Printer friendly page
Send this article to Friends by E-Mail

Opinion

News Update

Stories in this Section

An avoidable burden

The quest for a people's computer

Time for constitutional statesmanship

Bono and Geldof are too polite

No rain, but `snow' and water parks

Amid the new, China seeks out the old

500-year-old guide to good health