India depends on imports for meeting its petroleum product needs to the extent of 80 per cent. With global oil producers limiting production, with Iran, a large producer facing US sanctions, prices of crude oil and hence of petroproducts, have been registering increases and these impact domestic prices. There has also been a steep fall in the value of the rupee related to the US dollar and international prices of most of the commodities and other services are designated in US dollar.
It is true that the Centre and the states have been making increasing gains on the rise in the cost of crude. With mounting criticism, a few states – Rajasthan, Andhra Pradesh, West Bengal, and Karnataka – have announced token reductions.
Governments have a reason
The reluctance of the governments should be viewed in the context of their heavy dependence on the taxes on fuel in collecting revenues. These are estimated around Rs 300,000 crore for the Centre and around Rs 200,000 crore for the states. With the compulsions to keep fiscal deficits under control and with limited leeway available for expanding resources, governments are in a straitjacket. Remember, both the Centre and the states have been continuously engaged in introducing various welfare measures designed to benefit the larger sections of the population; like the recent Ayushman Bharat health insurance scheme launched by the Centre to help 50 crore population with health cover of Rs 5 lakh each.
Petrol is not consumed by the poor and goes for the consumption of powering cars and scooters. Understandably, these are afforded by better of middle-class citizens. This section has been silently accepting steep rises in prices of a variety of products and services. Look, for instance, at the massive increase in prices of construction materials: over the past five years in Chennai, the price of cement has shot up from around Rs 260 per bag to around Rs 400 plus per bag. There is not even a whimper of protest. From band-aid to a vast range of drugs and pharma products, both sold over the counter and prescribed, prices have increased manifold; there is an added burden: for years, tablets were available in small numbers of even one or two; today the consumer is often forced to buy a full strip of 20 or more, even if the patient may not need these. Not to talk of the humongous increase in health costs. Even a simple surgery costs over Rs 50,000. No objection. Sugar prices doubled in a matter of months. Jaggery, a low-tech product, is priced 50 per cent higher than the cost of a manufactured product like sugar. Any questions? One comes across a vast range of products used by the middle class like dresses registering huge increase in prices. There have been no protests. In the pre-liberalisation days it was possible to attend to a dent in your two-wheeler or car, including painting, for Rs 100 – Rs 200. Today you cannot come out of the garage without paying a few thousand rupees for any repair. Do we complain?
Some solutions
There are measures available for tackling the fuel price. Take the US, which was heavily dependent on petroleum products. In the 1970s, soon after the first oil crisis, the government mandated auto companies to increase fuel efficiency. It succeeded in achieving in a short time, fuel efficiency of 25 miles per American gallon (3.8 litres), nearly double the fuel guzzling cars of the US earlier. Now the US automakers are offering automobiles with much higher fuel efficiency of around 40 m/g (around 15km/li). (Contrast this with the 8km/li offered by branded sedans of Indian manufactures not related to claims of around 20 kml plus).The heavy dependence of US on imports for oil was tackled by stepping up domestic production. New technologies like fracking were adopted to produce oil and gas imprisoned in shales. In recent decades, the focus was made on producing vast quantities of ethanol from corn and mandating a mixture of ethanol with petrol. By such a multi-pronged attacks the US has dramatically
reduced its dependence on imports of petroleum products. In fact, in recent years it has even been exporting oil and gas! At the peak prices of crude in 2012-13, gasoline price in the US shot up close to $4 per gallon, nearly double the price earlier and today rules around $3. Despite the US citizens living on automobiles, there is acceptance of the market mechanism.
Disappointingly, there is a total absence of such multi-pronged efforts in India to address the problem. Though there are estimates of handsome reserves of shale oil, no investments have been made on tapping these. And despite the massive production of cane sugar, the potential for producing ethanol from this renewable resource has not been effectively tapped. It should be possible to use the pricing mechanism for ethanol to accelerate this move. Only recently the government has approved a decent hike in the price of ethanol produced directly from sugarcane juice for blending in petrol.
There are two other valid reasons for keeping petrol prices high: There is need to curb consumption due to the huge outgo on oil imports – with over 80 per cent of demand met by imports, draining precious foreign exchange both due to increase in crude price and a depreciating rupee. Second is the need to protect the environment – petroleum products contribute heavily to pollution. Look at the efforts at China massively investing in solar energy and electric vehicles, The country has emerged leader in these.
We do hear of phasing out coal for power production from new utilities from 2027 and the switch to EVs from 2030. These welcome and necessary goals should be backed by action in the form of attractive incentives through tax concessions and liberal investment credit. This is easier said than done in a divisive society like ours with parties in opposition and sections of the intelligentsia and the news media critical of any and every move of the party in power.
