Finance ministry cashes in on drop in global crude prices

The NDA government has been granted a dramatic drop in the global crude prices. A heavily oil-importing country like India with import dependence of 80 per cent, the price of its crude oil basket (a mix of both sweet and sour crude) has plummeted from $102 in August last year to $43 a barrel. The crash could not have come at a better time. The unpalatable decision to link domestic selling price of both petrol and diesel to import price so that the cost difference between import  and the domestic sale price suffered by the oil marketing companies (OMCs) could be compensated was made by the erstwhile UPA government, for petrol, and by the BJP-led NDA, for diesel.   

It is an irony of sorts that it was the NDA government under Atal Bihari Vajpayee that took the momentous decision of dismantling the administered pricing mechanism (APM) way back in 2002. But it took another decade and a year to decontrol petrol price in 2013 by the UPA because of the recalcitrance of its allies The NDA government took a similar decision in the case of diesel last November after Narendra Modi’s formed a majority government at the Centre. For Modi, the decision to decontrol diesel price was made easier by the earlier gradual to its recent precipitous fall in global crude prices. The subsidy on cooking gas or liquefied petroleum gas (LPG) subject to a ceiling beyond which the users have to pay the market rate and the deserving sections enjoying subsidy under direct benefit transfer (DBT) scheme through cash transfers, is part of the  rationalisation of unwieldy fuel subsidies. This will definitely go a long way in improving the fiscal parameters of the Centre. Plans are under way to rationalise the distribution and sale of kerosene to the targeted groups, as the leakage under the present system is unconscionably heavy.      

The Union finance minister Arun Jaitley seldom loses an opportunity to rail against indiscriminate subsidisation of costly fuels including petrol, diesel and cooking gas. It is as such small wonder that he seized the favourable circumstances of crash in global crude price to beef up his brittle revenue base in the wake of the immoderate assumptions of revenue receipts of his July 2014 maiden budget.  That is the unvarnished reason why Jaitley was able to slap four hikes in excise duty from November last to January 16, 2015 in a move to mop up a massive Rs20,000 crore to the exchequer with the OMCs defraying the tax. His reasoning is that the OMCs which had to absorb the embedded subsidies and faced under-recoveries for which they had to be bailed out by the Centre through off-budget adjustment are no longer in that predicament. Such humongous under-recoveries are likely to drop dramatically from Rs1.4 trillion in 2013-14 to a manageable Rs40,000 crores now. Although oil companies are to adjust their domestic retail price to the steep fall of global crude prices, they could not commensurately lower their sale price as they were saddled with substantial inventory to be liquidated that was contracted when the prices were ruling high. But the finance ministry has its abiding concerns over the fiscal health of the economy to be unduly troubled by the travails national oil companies or their marketing outfit such as Indian Oil Corporation (IOC). These public sector navaratnas are supposed to take due care of their commercial considerations!

Meanwhile, it cannot be said that the cascading effect of the steep drop in global crude prices and the Modi Government ‘s drive to  rev up manufacturing growth would be wholesome for the aam aadmi to feel that achhe din are here and now.  

The author is a freelance journalist based in New Delhi