Government profiteering from crude oil prices
The massive 10 percent increase in the prices of petrol (Rs.4) and diesel (Rs.2) decreed by the Congress-led United Progressive Alliance (UPA) government on June 6 is certain to send an inflationary surge through the Indian economy. The stated rationale for raising automotive fuel prices is the high price of crude oil in the international marketplace, which has risen from $55 per barrel in March to over $70 currently. With India’s oil refining companies having to pay 25-30 percent more for imported crude (80 percent of India’s annual consumption of 104 million tonnes of crude oil is imported), they were reportedly incurring a huge loss estimated at Rs.200 crore per day prior to the recently decreed increase in petrol and diesel prices.
Ex facie this argument is compelling. But it obfuscates the truth that the real reason behind the country’s crude oil importing and refining industry suffering huge losses is the crushing ad valorem customs and excise duties imposed on imported crude and refined petroleum products by the Central government. And ex factory, state governments get into the taxing act and impose further ad valorem sales tax.
Consequently every time crude oil prices rise (mainly for geo-political reasons) in the international marketplace, the Union and state governments reap huge unbudgeted revenue windfalls. According to The Hindu (June 7) the tax receipts of the Central and state governments from the petroleum industry aggregated a massive Rs.120,946 crore in 2004-05. Now following the steady increase of crude prices during the past three months, the exchequers of the Central and state governments are banking a further, entirely fortuitous, windfall.
Why should the Central and state governments profiteer from rising crude prices abroad? The plain truth is that the price per litre of petrol and diesel in Bangalore is Rs.19.81 given the landed pre-tax price of crude of Rs.3,150 per barrel. After allowing refining and transportation costs at 10 percent per litre, the pre-tax price per litre of diesel and petrol in the city is Rs.21.79 on the calculation that each barrel translates into 159 litres of petrol/diesel. Against this the consumer pays Rs.55.15 for petrol and Rs.36.55 for diesel. And given that retailers margins are a minuscule 40-80 paise per litre, the huge margin between the pre-tax and pump prices is being siphoned away by government.
The sky-high taxes paid by the public on petroleum products would be justifiable if the public derived any worthwhile government services in return. But with the Union and state governments running massive revenue account deficits, e.g the Union government cannot meet its own establishment expenses from the huge amount of Rs.403,465 crore raised by way of taxes annually, it’s a foregone conclusion that the additional taxes mobilised will be frittered away in unproductive government expenditure.
The primary function of government should be to protect citizens against higher prices demanded by foreign suppliers of essential commodities. Instead it has chosen the soft option of passing on the burden of higher international crude oil prices to India’s poor (by way of cascading inflation). Occasionally me-first government must make sacrifices for the people instead of the other way around as usual.
Shocking disregard for constitutional propriety
The face-off between the state government of Karnataka and Nandi Infrastructure Corridor Enterprises (NICE) which is in the process of constructing a six-lane highway linking Bangalore (pop. 7.1 million) the state capital, with the city of Mysore (pop.7.8 lakh) 85 km to the south-west, is a classic example of the extent to which power is exercised without minimal responsibility by most of India’s 29 state governments.
This project which in effect will merge the two cities, needs to be given top priority by the state government. For the simple reason that the civic infrastructure of Bangalore, characterised by automobile-choked roads, clogged drainage systems and mountains of garbage, is on the point of collapse. Quite simply, Bangalore aka the garden city urgently needs lebensraum.
This was the consideration which prompted the state’s Congress government led by S. M. Krishna — arguably the most competent chief minister of Karnataka ever — to fast-track the Bangalore-Mysore Infrastructure Corridor (BMIC) during his term (1999-2004). The state government floated a global tender for the project which after a transparent bidding process was awarded to NICE, a company promoted by Ashok Kheny, a US-based construction engineer who undertook the project inter alia for sentimental son-of-the soil reasons.
Unfortunately in 2004 the Congress party lost its majority resulting in Krishna’s ouster from office and the subsequent Congress-JD(S) and JD(S)-BJP governments have discovered many flaws in the state government’s contract with NICE. In particular former Karnataka chief minister and JD(S) supremo H. D. Deve Gowda (who was also prime minister at the Centre for a brief period in 1998) is especially opposed to the Rs.2,750 crore BMIC project because he believes that NICE was allotted land in excess of its bona fide needs by the previous government from which it stands to profiteer. To clear procedural hurdles placed in his way, earlier this year Kheny moved the Supreme Court which gave him a clean chit, and imposed a Rs.5 lakh fine on the state government for obstructing the speedy implementation of the BMIC project. Despite this clear and unambiguous directive of the apex court, the new breakaway JD(S)-BJP government is foot-dragging about acquiring and allotting NICE the land it requires for completion of the corridor.
For the public which is paying the price of this project completion delay, it is neither productive nor purposive to re-examine the merits of the case. This task has already been accomplished by the highest adjudicatory authority in the country — the Supreme Court. What the public needs to do is to weigh its verdict, add to it the fact that the Karnataka administration is rated among the most corrupt in India, evaluate the admission of chief minister H.D. Kumaraswamy that he owns 46 acres of land contiguous to the corridor, and render summary judgement. In the interests of constitutional propriety and orderly governance, citizens of learning and authority need to speak up and show the ill-advised Karnataka government the error of its ways.