Rajeev Narayan

Around Diwali last year, with assembly elections looming in five states, we got a bumper gift from the powers that be, with the Government buckling under political pressure and reducing excise duties on petrol and diesel, bringing both fuel types under the Rs 100-per-liter mark. A few weeks after the results, price hikes are back and this time around, they are steep and ferocious. 

This is even though India defied international pressure and moved ahead with its plans to buy oil from Russia at a highly discounted price. 

Nonetheless, not only has no relief been passed on to the end-consumer, prices have been repeatedly increased—petrol, diesel, CNG, PNG, and LPG cylinders are all much more expensive than they were in the months leading up to the assembly polls in five states.

Admittedly, India needs to shore up its strategic oil reserves, as do many other countries, but at least some relief should reach India’s already battered middle-class, plagued by rising unemployment, stagnant or lower salaries, steep inflation, and still worried about the future from a COVID-19 perspective. Also, one simply has to wonder what the latest Rs 250-jump in commercial LPG prices will do to the levels of pilferage of LPG meant for domestic use, especially those under the Ujjwala scheme targeting rural households. The one saving grace is the United States, which forced OPEC last week to reduce crude prices by releasing massive amounts of oil from its strategic reserves to rein in any immediate crude price rise.

Look at the prices

So what triggers in me such belligerence and a tirade? Well, it is the fact that today’s slashed excise duties on petrol and diesel have touched Rs 31.98 and Rs 32.80 per liter. Let’s go back to the past, to 2014, when the excise on petrol was Rs 9.20 and that on diesel per liter was Rs 3.46. Those were the heady days since crude was priced at $120 per barrel, well above today’s rates.

The year 2014 is historical? Sure, I am a dinosaur, but one that has some chilling numbers. Let’s hit closer home, focusing on last year, the Year 2020. In the 351 days from 14 November 2020 to 1 November 2021, the price of the domestic gas cylinder was increased by Rs 305. After the recent price hikes, a domestic gas cylinder which was priced at Rs 592 in November 2020 today costs Rs 899.50. Petrol was Rs 81.25 per liter, now it is Rs 102.61. Commercial gas cylinders were Rs 1,157; they are now Rs 2,253. Finally, we have diesel, which was Rs 70.67; now it is Rs 93.87. And mind you, these are the prevalent prices for various fuel types in Delhi, which is the cheapest metro city for fuel purchases, with the other three being far more expensive.

The chullah beckons

The above prices have sent the average Indian home-maker in our villages scurrying into the forests to gather firewood, a telling outcome of the Ujjwala Gas Yojana, where LPG cylinders were given free to rural households and advertised through hoardings at every street corner, even at our almost-international domestic airports. Let’s not even talk about what the price rise is doing to the cost of cooking oil and pulses, tomatoes, potatoes, peas, and onions. Cauliflower, anyone? In the nineties, kandha (onion) brought down a government. Today, the world and its Governments are made of sterner stuff, as are social media and the WhatsApp brigade, or so we believe.

Thus it is that our authorities perk up prices to notch up excise revenues of Rs 400,000 crore each year; year on year for a while now, while their spokespersons risk damage to their tonsils by shouting and booing, submitting that they are only summoning up resources enough to cough up the dues that the previous governmental regimes built up through their ‘vicious’ oil bonds. Oil bonds indeed… A principal payment of Rs 130,000 crore cannot be made up through annual excise collections of Rs 4 lakh crore? This is food and fodder for thought. 

What comes next?

That depends on the states now, doesn’t it? The move by the Central Government to reduce excise duties on fuel prices shifts the onus on the states to reduce Value-Added Tax (VAT), the other big determiner of prices of crude-based products. But many are unrelenting, broke as they are, while 22 states and Union Territories have announced cuts in VAT on all motor fuels, providing further relief to customers. But there are 14 Indian states and Union Territories that have not announced any reduction in VAT, as per a statement by the Ministry of Petroleum. Here are the states that are being recalcitrant –Maharashtra, the National Capital Territory of Delhi, West Bengal, Tamil Nadu, Telangana, Andhra Pradesh, Kerala, Meghalaya, Andaman and Nicobar, Jharkhand, Odisha, Chhattisgarh, Punjab, and Rajasthan.

Why? Well, it is because they are financially broke, literally.

It is in this context that the Reserve Bank of India’s (RBI) annual publication ‘State Finances: A study of budgets of 2020-21’ comes into play, taking stock of the financial status of India’s states. The RBI predicts that the hard-won process of fiscal consolidation that had States projecting a combined Gross Fiscal Deficit (GFD) of 2.8 percent of the Gross Domestic Product (GDP) is well en route to suffering a setback, with the GFD likely to top 4 percent. This is the outcome of the ‘scissor effect’ that has seen State tax collections take severe hits from the COVID-19 lockdowns, even as their fire-fighting responses have escalated unplanned expenses.

To juggle cash flows, States have used stopgap fixes such as fuel duty hikes and deferred salaries, which are unsustainable. When boxed into a tight corner, States have no option but to slam the brakes on capital expenditure. This eventually poses a grave risk to incipient economic recovery, as States end up working at cross-purposes to the Centre’s stimulus efforts. Further, State governments are banking on funding 90 percent of their budget gaps in FY 2021 through market borrowings, compared to less than 50 percent in FY 2017.

It is a fuzzy picture and one can’t expect any real clarity in the foreseeable future. There has not been any policy announcement on the free market pricing of petroleum products. This leaves the path wide open for oil marketing companies to keep increasing prices in tandem with international movement in the price of crude imports. The still ongoing Russia-Ukraine standoff is only making matters worse, and one can only hope an early resolution will help ease crude prices and prevent further misery.

Sometimes, the goal is to get people to do or reveal something that they don’t want to, and for this, empathy and rapport are vital—these two are now starkly missing between the rulers and the ruled. That having been said, the truth is oft a lily that I may have gilded. Let me not spoil your day anymore by attempting to pick out sense from all the nonsense surrounding us today. Instead, let’s rejoice in the tomorrow that may still be, only if we move along the right path, with or without roses and velvet in our hands and hearts. Amen.

(The author is a clinical analyst and communications specialist)