The Telegraph
Since 1st March, 1999
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- The oil price hike may justify protests, but never a bandh

Yet another wretched bandh was forced upon hapless Calcuttans by their rulers. The ordeal started as a transport strike protesting against the recent hike in petroleum prices but was executed to such perfection that it took the shape of a virtual bandh. Of course, petroleum prices went up everywhere in the country, but as always, it remained the spiritual obligation of the Bengalis alone to raise their voices in protest. The left, which is supposed to have changed its traditional anti-bourgeois stance lately to woo capital inflows into the state, thought that the issue is special and important enough to vindicate a bandh. Two questions would, therefore, crop up in the present context. First, is the recent hike in petroleum prices acceptable as a policy measure' Second, if not, can a bandh leading to losses of thousands of man-hours be justified to protest against the price hike'

Let us get the facts straight. Petrol and diesel prices have been raised by the petroleum ministry from the third week of June as a consequence of the steadily rising international price of crude oil. Between the Indian metros, the resultant rise in prices is the highest in Mumbai and Chennai and the least in Delhi. Calcutta falls somewhere in between, registering a Rs 2.62 rise in petrol price and a Rs 2.08 rise in the price of diesel. The petroleum minister has justified the move by referring to the steady upsurge in international prices, and by pointing out that the government has actually absorbed a part of the price hike, leaving only a partial burden to the consumers. If the entire price hike were shifted onto the consumers, the burden, we are told, would have doubled. Moreover, the government wants to take some indirect credit for being able to keep the prices of kerosene and cooking gas unchanged in the face of rising crude oil prices.

Prices of crude have indeed been rising in the international market for quite some time, hitting almost the $60 per barrel mark a few weeks ago. Last December, when the price crossed $50, the blame was put on temporarily faltering supply lines in a few oil-producing countries and on an exceptionally bad winter. Now that these temporary hazards are gone, the onus of the price hike falls squarely on the Organization of Petroleum Exporting Countries. So much so that the United States of America, which happens to be the largest buyer of oil in the international market, has recently passed a resolution in its senate to sue the OPEC for its monopoly practices. It may be mentioned that the OPEC accounts for 40 per cent of world production of oil, and owns two-thirds of the world's proven reserves.

All our oil, unfortunately, is imported. So if world prices go up, we may, depending on the mood, blame our stars or the OPEC, but have no option other than increasing domestic prices. This is, in a nutshell, the argument offered by the government to justify the recent price hike. It sounds like a good argument, at least apparently, and merits a more careful consideration.

To develop a counter-argument, let us start by looking at the current gasoline prices prevailing in the US. Of course, gasoline prices in the US vary from state to state and from coast to coast, but they vary roughly in the range of $ 2.10 to $ 2.30 per gallon. Let us take $ 2.20 per gallon as the working average. If we convert dollars to rupees and gallons to litres, this average price of gasoline in the US turns out to be not more than Rs 26 per litre. The average current price of petrol in India, on the other hand, is almost Rs 44 per litre, which implies that the price of petrol in the US is 60 per cent lower than that prevailing in India.

How does one explain this price difference' In the international market, the price of oil may be determined by demand and supply forces but here in India they are administered by the government. The import price, of course, is equal to the price prevailing in the international market, which roughly corresponds to the US price, but taxes of various kinds are added to this price by the state and Central governments before the final output is sold to the consumer. So the huge difference between the domestic and the international prices is accounted for by taxes which are appropriated by the government as revenue. The consumers, therefore, are not only hurt by rising international prices, but are also significantly burdened by huge taxes on petrol and diesel. It follows that the government could keep the price of petrol and diesel unchanged, even in the face of rising international prices, if it only chose to reduce taxes.

The government has a second line of defence though. It is often argued that the tax revenue obtained from petrol and diesel is actually used to cross-subsidize other petroleum products like kerosene and cooking gas which are supposed to be used by the common people. In fact, the subsidies on the latter group of products are so high that the tax revenue from petrol and diesel is not enough to finance them and the government has to allocate additional sums of money to maintain the overall subsidies in the oil pool.

The argument, however, is flawed in at least two ways. First, kerosene and cooking gas are not the only products used by the masses. Almost all items consumed by the poor need to be transported and their consumption would never have been possible without using up petrol or diesel. So if kerosene or cooking gas deserves a subsidy, so does petrol and diesel. More important, it is impossible to understand why the expenditure of subsidizing one set of petroleum products has to be financed only by taxing another set of petroleum products. Common sense would suggest that it could be financed by hundreds of other means. So subsidies on kerosene and cooking gas can hardly justify the huge taxes on petrol and diesel, the extensive use of the latter commodities by the poor, in fact, deserves a subsidy.

Clearly, the main purpose of taxing petrol and diesel is to generate revenue, especially since these are essential commodities with demand scarcely going down with an increase in the price. A minor reason could be insensitive and mindless handling of the situation by politicians and bureaucrats who are used to unlimited free rides at the taxpayers' expense and are never hurt by a price hike of petrol. One is, therefore, led to conclude that the recent price hike is not justifiable and could have been avoided. In any case, the government has no moral right to use the international price rise as an apology for raising the domestic price as long as a huge distortionary gap exists between the two prices.

It should, however, be made clear that the price hike may justify protests, but never a bandh. The left could throw its weight and create more effective pressure on the ruling party in ways other than calling a bandh. Instead, it chose to have a bandh and that too in West Bengal which no one, including the left, believes can reverse the price rise. The bandh, of course, had other important purposes to serve. The muscle drill was a routine reminder to the public about the omnipotence of the almighty left. It gave the army of party cadre a chance to practise its trade and oil the election machinery. Most important, it helped the left to distance itself from the Congress, which is essential before the assembly polls due next year. All these objectives were achieved at the cost of a day's work for some and a day's wage for many. But then, who cares'

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