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Jacking up oil prices

In effecting an increase in the prices of petrol and diesel for the sixth time in two years, the United Progressive Alliance Government at the Centre has shown utter insensitivity to people's concerns about its impact on essential commodities. The present hike in petrol prices, by Rs.4 a litre, is the biggest in absolute terms; alongside the hike in diesel prices by Rs.2 a litre, this could prove crippling. Such sharp increases will have a cascading effect on inflation, pushing up the cost of living and eating into the purchasing power of the poorer sections. Under these circumstances, no comfort can be drawn from the fact that the domestic cooking fuels, liquefied petroleum gas and kerosene, have been spared. Of course, insulating kerosene, which remains the poor person's fuel, and LPG, which is increasingly used by a large number of low-income households, from the harsh exercise makes sense. But to imagine that the poorer sections will not be hurt so long as they are not affected directly will be a costly fallacy. The timing of the price increases — immediately following a major round of Assembly elections in which parties in, or supporting, the UPA fared well — will certainly not go unnoticed by the people. Indeed voters can justifiably feel they have been taken for a ride. Over the long term, the Congress and other constituents of the UPA will have to pay a heavy political price for two-timing on the sensitive issue. That the UPA chose to override the objections of the Left and some other parties is of a piece with its gross insensitivity to the concerns of the poor. As critics have pointed out to the Government, there were alternatives to the price increases.

A reduction in the relevant taxes should have been the first option. The decision to reduce the customs duty on petrol and diesel from 10 per cent to 7.5 per cent is neither here nor there. No other sector fetches as much revenue for the Central and State Governments as petroleum does: it was Rs.120,946 crore for 2004-05. About 25 per cent of customs and 43 per cent of excise duty collections came from the petroleum sector. At another level, States have been reluctant to bring down their sales tax on petroleum products. Maharashtra, Andhra Pradesh, and Tamil Nadu have abnormally high sales tax — ranging from 25 per cent to 30 per cent — on petrol and diesel. It is an irony that while regional parties as a rule have been critical of increases in the prices of petroleum products, State Governments headed by them refuse to consider a reduction in sales tax to lessen the burden on the people. For every hike, the upward trend in international crude prices is cited as the primary cause, but this merely betrays an unwillingness to restructure the present wholly arbitrary oil pricing mechanism. A rollback of the latest price increases, pending an all-party discussion on what needs to be done, will be in order.

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