Inability on take a call on rise in petrol and diesel prices - Lame duck Government governed by FM & PM who are guided by the Invisible hand of Madam and threatened by the Stick of Left
A cess or surcharge on income tax and corporate tax may be levied to bail out oil firms reeling under high global oil prices as Petroleum Ministry's proposal to raise petrol price by Rs 10 a litre, diesel by Rs 5 per litre and that of LPG by Rs 50 per cylinder finds few takers. The new proposal follows Finance Minister P Chidambaram's reluctance to cut duties on crude oil and petroleum products unless alternate source of revenues are identified. Petroleum Minister Murli Deora met Chidambaram today but failed to convince him of the urgency to cut import and excise duties to avoid the Rs 2,00,000 crore revenue loss expected on petrol, diesel, domestic LPG and kerosene this fiscal. BPCL and HPCL have cash to buy crude oil only till July while Indian Oil can finance imports till September. The three firms face huge liquidity crisis as they are unable to realise full value of products sold. "We don't want to see scarcity of petroleum products particularly kerosene and LPG," Deora told reporters after the meeting. "Oil companies are in a precarious state and we need urgently find solutions." Deora said some proposals were discussed but "nothing has been agreed." Sources said a cess or surcharge like the one levied after the Kargil war, may be imposed on income and corporate tax to make up for the cut in customs duty on crude oil to zero from 5 per cent and an excise duty cut on petrol and diesel. Petroleum Ministry is proposing to raise petrol price by Rs 10 a litre, diesel by Rs 5 per litre and that of LPG by Rs 50 per cylinder cut the Rs 580 crore per day loss made by the three oil firms by one-third. S Sundereshan, Additional Secretary in Petroleum Ministry said oil companies cannot wait for another week for the decision. "We are hopeful that a decision will be taken soon," he said. "The crisis needs to be defused at the earliest." Deora said some in the government want petrol prices to be deregulated, a move that may see rates being hiked by Rs 16-17 a litre, but continue subsidies on diesel. Petrol contributes has negligible weightage in inflation and so its deregulated prices moving in tandem with global prices will not lead to price hike. Diesel, on the other hand, is used by transport industry and replicating the same for the fuel would have cascading effect on inflation.
Sum's take on this - This is not only redicilous but plain lame duck approach of the Government which is often seen as being run by a proxy PM. There's been a panic world wide on rising crude prices and there has been a resultant increase in petrol and diesel prices. Indian government whose carrot of farm loan waiver has some how not been taken very well by the masses (as is evident from the results of recent elections), now wants to approach the coming lok sabha elections without angering people with any increase in fuel prices.
The underrecoveries on petroluem products amounting to Rs.200,000 crore a year are enough to finance the entire fuquirements of the rural roads , Rs.43,200 crores component of Bharat Nirman Plan, Rs.65,000 crore rural electrification plan and providing assured irrigation to millions of hectares of land which in dependent on the vagaries of monsoon. The UPA's agenda of pro poor will be better met by utilizing the Crores on these schemes than by playing the lectoral card and funding the rich, middle class with their hefty oil subsidies.
Even if petrol is deregulazed and the prices are set to be maket driven (an increase of Rs.10-15 per litre) it would not have an adverse impact on inflation numbers. Also keeping the diesel prices and keresone prices under moderate increase levels will keep the oil subsidy under check.
I am sure we are not prepared to see a situation of oil shortages in the near term, and it would not only dent India's claim of being an economic superpower but it will also not go too well with Madam's electoral population.
Its time for Madam to give some free hand to PC (Chidambaram) to run MS software (Manmohan Singh) and put things back on track with some sound programming in the final lap of UPA's governance.
Government is using the cess as a tool of drifting away from the main issues. It remains to be seen how the education cess recoveries have been spent. Duty cuts or cess are defensive measures being taken by a Government who have forgot the basics of fiscal prudence.
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