Fuel Prices Hike – Request to be Sensitive to Common Man’s Daily Needs
May I request and appeal to Narendra Modi, Prime Minister, to be sensitive to common mans needs and to roll back fuel and gas prices to 31 December 2020 level. P Fuel prices hike is hurting the common man.
People are no more gullible. With mobiles in the hands of the common man, people are well aware of full details of variations of prices at international and local levels to include: international prices of crude, refining costs, transportation by pipeline, rail and trucks, Dealers commission, Vat, Taxes by both the Central and State Governments.
Please remember that with a click on the “Google” on the mobile, common has access to daily charts of international oil prices data.
Common man knows that petrol, diesel and gas prices undergo daily revisions under dynamic pricing mechanism in place since 2017. Before that OMCs used to revise prices fortnightly.
Hike in fuel prices on daily basis is a “Golden Opportunity” offered to opposition parties to seize and launch all out political offensive through “Hartals/Rail and Road Roko” agitations.
No wonder. Ashok Gehlot, the Chief Minister of Rajasthan, is already on a war path. Digvijay Singh in Madhya Pradesh has joined the chorus against fuel price hike.
Fact 1: Latest Crude oil prices per barrel (158.76 liters) include by sources - WTI Crude $61.3; Brent Crude $64.37; Opec Basket $62.48; and so on. Say average crude oil costs $64 or (Rs.4650.00 today’s rate) per barrel. If so, cost per liter in Rupees is just around Rs.40.00 only.
Fact 2: Refining Cost is 52 paise per liter, that is, insignificant.
Fact 3: Pipeline transportation cost is about $5 per barrel; $10-$15 a barrel for rail and $20 a barrel by truck. Assuming the highest cost of $25 by all three means (Rs.1800.00 per barrel) or say Rs.11.00 per liter.
Fact 4: Dealer Commission - different for petrol and diesel and varies a little with the location of fuel pumps, ranging from Rs 2-4/liter. In Delhi, the dealer commission is Rs 3.57 a liter for petrol, while on diesel it is Rs 2.51.
Adding the above costs, the cost per liter generally is say around Rs.55 per liter.
People are well aware that the additional burden is due to imposition of taxes: 1) Central Excise Duty – petrol Rs 32.98 per liter and diesel Rs 31.83 a liter; 2) VAT varies from State to State - Madhya Pradesh, Kerala, Rajasthan, Karnataka levying over 30 per cent VAT — the highest among states.
Union Finance Minister Nirmala Sitharaman, in her Budget speech, had announced the imposition of Agriculture Infrastructure and Development Cess (AIDC) amounting to Rs 2.5 per liter on petrol and Rs 4 per liter on diesel purportedly to boost farm infrastructure.
Most importantly, people are well aware that India has highest taxation rate of around 69% whereas in USA it is only 19%.
Therefore, in no way, any astute politician, like you, can rely and bank on continued voters support to your government. So, why are you silent on the issue of imposing additional burden on the consumer, who has suffered immensely due to “Covid-19”?
The burden imposed due to fuel hikes is primarily on account of Central and state government taxes. And, the reason for such high variation in Hyderabad is due to high State government taxes.
May I draw your kind attention when there was steep decline in international oil prices due to Covid-19 outbreak during March 2020 - a low of $20.75 per barrel - there was no automatic reduction in domestic oil prices! Common man willingly accepted to bear the tax burden. Now, it is hurting the common man’s daily living needs.
No longer, the ‘common justification’ given in the past that domestic prices move in tandem with international oil prices; ‘Oil Companies’ are running at a loss due to under recoveries; “Weak Rupee”; heavy burden of subsidies which is unsustainable for the exchequer; and so on.
In reality, successive ruling regimes have been bluffing and fooling the people not only justifying hike of various oil products prices but also justifying hike in rates of all public utilities particularly passenger and freight services and its fallout – inflation.
Furthermore, fuel prices hike will have an impact on the entire range of economy: airlines, railways, road transport corporations, private transport agencies, all types of freight services, autos, taxis, tractors, bore well operators and so on. All of them will automatically increase prices thereby further adversely affecting the common man’s interests.
Also, the middle classes no more will bear the burden on account of government claims of subsidies and welfare freebies.
Everyone is aware that high tax recoveries both at the Central and State Governments are the root cause of high prices of petroleum products.
In particular, one cannot fool middle classes that the government is running a deficit vis-a-vis the petroleum sector. A macroeconomic view of the petroleum sector gives an exactly opposite picture. Surya P. Sethi, former energy adviser to the Planning Commission, had estimated the contribution of this sector through taxes to the central as well as the state governments and contrasted it with the total subsidies provided by the government.
Comprehensive studies carried out by experts highlight that the tax contribution of the petroleum sector is higher than the subsidies provided by the government, inclusive of the so-called under-recoveries.
As per the latest data available in public domain, the actual tax revenue on petrol and diesel in FY20 was Rs.2.2 lakh crores and was budgeted for Rs.2.48 lakh crores in the FY21. But, on account of the steep hike in excise duty on both petrol and diesel, the tax revenue is likely to increase to Rs.3.46 lakh crores in FY21 and may even increase to Rs.3.7 lakh crores.
Also, people will no longer accept that the oil companies are incurring losses due to the governmental regulation due to under-recoveries. Oil Companies must exercise strict austerity. Under recoveries is also a controversial issue. The difference between the cost price and the realized price represents the under-recoveries of the oil marketing companies (OMCs). The realized price is the post-tax price.
Given the above realities, there is no way people WILL accept imposition of additional burden adversely affecting their daily life. If decisive and expeditious action is not taken to retract and reduce Central Excise tax burden to 25% and retract on the imposition of Agriculture Cess, the common man will only blame your government for its greed for revenue collections by taxing the common man. Such a step would certainly earn the ruling regimes tremendous amount of goodwill.
If the State Governments do not follow the Central Government decision to reduce the VAT burden, then the blame for higher fuel prices will rest on the State Governments.
In sum the key issue is the imperative to reduce the burden on the common man, particularly the middle class. Please act with expediency; otherwise accept voter’s backlash in the forthcoming elections.
Brig (Retd) G B Reddy – Veteran of 1962, 1965 and 1971 Wars
PS: With request to readers having access to Modi Ji to forward the same to him.
Article by Brig (Retd) G B Reddy Sir
0 Comments