government also reduced the customs duty from 10 to 7.5%
and thus exchequer loses about Rs 6500 crore, reducing the
deficit further. The Government is issuing oil bonds to
a tune of Rs. 28,000 crore to reduce the oil pool deficit.
To that extent, the burden on government increases, except
that there is deferred cash outflow. Finally, the oil companies
will share a loss of revenue of Rs. 24,000 crore, which
in effect is a subsidy to consumers. All these and other
steps would bring down the deficit to a manageable level
of Rs. 3000 crore. Clearly even with price increase, the
government and oil companies are bearing an additional burden
of Rs. 52,000 crores, and government is foregoing a revenue
of Rs. 6500 crore.
international crude prices skyrocketing beyond $70 per barrel,
any government would have to pass on at least part of the
burden to the consumers. Most countries have enhanced oil
prices. Britain which imports only 20% of its oil needs,
in contrast to our 60%, has priced its petrol at 95 pence
per litre (nearly Rs. 82). Most of the nations have realized
that global oil prices are likely to further increase as
demand continues to grow and supplies stagnate. Over the
next few decades we are going to face the severest oil crisis
for over a century.
countries have to brace themselves for two consequences
of this crisis. First, oil prices need to be increased,
as governments cannot absorb the costs. Second, the world's
dependence on oil needs to be reduced, and consumers and
industry should have an incentive to go for energy efficient
technologies, more sustainable life-styles and renewable
fuels. Otherwise unmanageable fiscal deficits will force
governments to bankruptcy; and societies will suffer grievously
as oil becomes costlier and more scarce. That is the reason
why even rich countries are also raising prices in the interests
of the criticisms and concerns raised by our economists
and parties is the low tax-GDP ratio in India. Our taxes
probably account for 16 - 18% of GDP making it one of the
lower shares among large economies. Clearly, better infrastructure,
education, healthcare, justice, policing and other public
goods cost more money, and low tax base will hurt the poor
and inhibit economic growth. If governments give up taxes
in order to keep oil prices low, it will only deplete the
treasury at the cost of much-needed public goods and services.
If other taxes are raised to subsidize oil, it only means
that the government is removing the money from the citizen's
right pocket and putting it in the left pocket!
our low tax-GDP ratio, and the appalling quality of infrastructure
and public services, the burden of oil price increase has
to be borne by consumers. What we should demand is that
every rupee collected is wisely spent by the government
for the larger good of our children. Greater transparency,
decentralization, accountability, and citizen empowerment
must be the watch words.
fact, the subsidies in energy sector have largely been just
dysfunctional and detrimental to the economy. Low price
of LPG and kerosene is leading to unauthorized diversion
of subsidized LPG and kerosene as automobile fuel. The government
is losing an estimated Rs. 15,000 crore per annum in subsidies
through diversion. Adulteration with kerosene, which is
priced low, is leading to serious environmental pollution
and damage to vehicles. Subsidized oil and excise duty concessions
on automobiles are promoting private motors leading to more
pollution, congestion, higher oil consumption and trade
if subsidies have to be given there are two prime candidates.
First is high quality, reliable public transport which will
reduce oil consumption, pollution and congestion. Second,
viable alternative, renewable, indigenous fuels like ethanol.
This will pave way to the shift to indigenous fuels and
reduce green house gas emissions and global warming, rejuvenate
agriculture and put our money in our own people's pockets.
Even the US is subsidizing ethanol to promote its production.
Brazil is saving vast amounts of foreign exchange by producing
ethanol at about $ 25 - 30 per barrel.
Sometimes, being wise and compassionate requires toughness.
We need to have a comprehensive review of our energy and
pricing policies, and delink government from oil pricing
decisions. The market should determine the prices, and all
subsidies saved should be used for education, healthcare,
infrastructure and alternative fuels. We must focus on long-term
energy security, renewable biofuels and reduced dependence
on costly, imported oil. Politicians have an obligation
to look at the bigger picture, speak truth, and mobilize
public opinion in favour of rational policies. If today's
transient comfort is at the cost of better tomorrows, our
children will pay a heavy price for our thoughtless follies.