Our first 1980 oil cover

A recent cartoon in an American newspaper showed a gas station with pumps marked 'Regular', 'Premium and 'Obscene'. Rise in oil prices and its impact on consumers and governments is not, however, a laughing matter. Specially in India as the Government decided to raise the price of petrol and other products by 16 per cent in response to the unprecedented international price of $70 a barrel. The average price an Indian consumer pays for petrol is Rs 47 per litre. Indian consumers are paying more than their counterparts in other countries. In the US, petrol prices are the equivalent of Rs 34 per litre while those in Thailand pay Rs 30 per litre. Considering this and the likelihood of further increases, it is an opportune time to examine the pricing policy of petroleum products.

The crux of the issue is that even after 15 years of liberalisation, pricing of petro products is completely government controlled and by and large based on political considerations. Most consumers do not know or tend to forget that taxes constitute over 45 per cent of the price of petro products. Governments, both at the Centre and the state, have found this to be an easy way of collecting revenues as prices shoot up with the result that it is the largest single source of revenue. Over a third of all government revenue comes from the sale of petroleum products. Naturally none of the states, or the Centre, wants to give up the goose that lays the golden egg. What this actually points to is that India has put all or most of its revenue eggs in the oil basket. That is a dangerous dependence specially since India imports nearly two-thirds of its oil requirement and ranks among the 10 largest oil-consuming countries.

Clearly, there is a need to slash taxes and make fuel costs manageable. The political gamesmanship though stifles any attempt to address the issue. None of the parties that are protesting for instance has suggested alternatives barring the Left parties who have some ideas and a harebrained agenda to boot. This is really a crisis because governments have refused to widen the tax net. We need to get rid of politically motivated exemptions so that we can have alternate sources of revenues to fund development. We desperately need to put in place a realistic market-oriented oil pricing policy that replaces the current administered price mechanism.

The politics of oil, which is the focus of our cover story, put together by Managing Editor Shankkar Aiyar, looks at the oil squeeze from all relevant angles: political agendas, oil PSUs, the complex business of pricing and its impact on consumers and government revenues. Next time you fill your car with petrol and see the big hole it burns in your pocket, you will better appreciate that you are a victim of populist politics

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