India must subsidise fuel prices to increase revenue, writes Shivaji Sarkar

The country needs a new approach to prices, taxes, tolls, and issues of progress. It wants to control prices as often the leaders proclaim and then go on increasing every bit that is under administrative control.

Post-poll, the prices are rising almost 85 to 90 paise a day on the plea of rising crude prices. But the companies did not reduce prices when crude prices crashed to a virtual zero during the pandemic. The high fuel prices have stoked inflation as transport prices spiral, making goods and commodities expensive when the people need relief. The administration says that the petroleum companies decide the prices but despite supposed ‘genuine’ needs they freeze prices for over a month during elections. It may be a coincidence but that is repeated poll to poll.

Rightly, the Ukrainian situation has put the country in a difficult situation but wisely, it could firm up an agreement with Russia for continued fuel supply. That is prudent though it was not easy in an era of US-led sanctions. The balancing act is possible because of India’s moral authority under Prime Minister Narendra Modi and the corps of diplomats.

The world can see that Sri Lanka has failed in doing it and again Indian Oil has to come to its rescue by continuing fuel supplies and keep running its power plants. Sri Lanka is in a deep economic crisis. Rice is being sold at Rs 500 a kg and all commodity prices are soaring. Inflation spikes to 14 per cent. India has over 13 per cent wholesale and 6 per cent retail inflation. The income level in India is either thawed or post-covid at a low level. Lanka got into the crisis as it deliberately chose to go into the Chinese ambit to keep off India. Its main foreign exchange reserves shrunk due to reckless borrowings from China to finance infrastructure projects, according to Hong Kong Post.

Successive governments in India have been using petroleum as a tax-spinner forgetting that even a paisa hike on petrol has a cascading effect on the entire economy. Since the UPA times, the economy has been dependent on taxes on fuel leading to its collapse to ‘mehngai dayain’. The successive administration should have learnt and corrected it but the problem accelerated as domestic production plummeted to around 20 per cent and dependence on imports increased causing the rupee to slide beyond Rs. 76.

It has led to an overall price spiral. Wholesale and retail prices are going beyond the toleration level. Sunflower oil jumps by 20 percent to Rs. 182, soya oil sells at Rs. 162, dearer by 10 percent; and palm oil Rs. 151.80 dearer by 13.65 percent. Mustard oil, wheat, rice, pulses rose by over two per cent. Textiles and other commodities are also becoming dearer.

Alternate fuel like ethanol, processed largely from sugarcane, is being proposed for mixing with petrol. It is likely to make sugar expensive. It is a myth that it would sell cheap as the processing cost is high. Ethanol production can, according to US studies, cause air, water pollution, soil erosion, and habitat loss. But, it is considered to benefit Maharashtra cane growers. Apart from that, ethanol is not supposed to be engine friendly with its high moisture.

The Electricity (Amendment) Bill 2021 on which battery recharging is based would make coal and power dearer. Besides, more battery usage will lead to higher coal-generated power production causing heavy emission pollution and spiking power rates. Power workers are planning a two-day strike shortly against the bill as it encourages privatisation.

In the months leading up to the Covid-19 pandemic, U.S. oil production hit an all-time high of just below 13 million barrels per day (BPD). As the pandemic unfolded, demand collapsed, and production followed. By May 2020, oil production had dropped by more than 3 million BPD to 9.7 million BPD. India's domestic crude oil production has steadily decreased in recent years. In 2013-14, Indian companies produced 37.8 million tonnes of crude oil and condensate but that dropped to 32.2 million tonnes in 2019-20, a sharp slide of 15 per cent. India produced 35.68 MTs of crude petroleum in 2017–18.

During the last 15 years, it was noticed that as petrol prices rise, the economy gets into a spin. Under World Bank and IMF pressure, India gave up subsidies causing immense harm to the poor, middle and small enterprises, prices of commodities. A little subsidy, if not a direct benefit, helps every section of the society.

It is a myth that India has a higher upper class or the middle class is able to fend for themselves. India does not have a "middle class" except that they are slightly above the poverty level. A bumpy situation hits them hard. Overall subsidies will benefit a larger population and help the economy keep prices under check. The nation has unfortunately continued with the policies of Manmohan Singh instead of correcting it. India needs to understand the Lankan stress on infra that drained its resources. It must go slow on infra now. Infrastructure builds expensive assets with a higher recurring expenditure that stresses the economy severely. Had it conserved its reserves, put off expensive infrastructure projects, Lanka could have avoided getting into the amiss. Increased money supply, infra investments, and depreciation of the rupee stoked inflation there.

The Ukrainian situation has disturbed the oil supplies across the world. India has hedged it for now with the promise of Russian supplies. World leaders could have influenced Russian leader Vladimir Putin to seize Ukraine and not go into a full-fledged war. Today, it has put Europe into a tinderbox. For the folly of the NATO and European countries, poor countries like India suffer the most.

The symptoms of the Lankan and Indian economy are not different except that India has the capacity and size to sustain which Lanka does not have. It would be prudent on India's part to reintroduce subsidies on petrol as alternate energy is yet not available. It would change the dynamics of the economy, generate more revenue, and can do better if infra is put on the backburner and manufacturing is boosted to give the economy a start.

(The writer is a veteran journalist, an observer of the socio-politico economy, and a media academician)

Published on: Monday, March 28, 2022, 08:07 AM IST