Which government, the Congress-led UPA or the Bharatiya Janata Party-led NDA, managed the oil sector more efficiently? On social media, the BJP claimed victory by saying the National Democratic Alliance regime has been more kind to the people by moderating the dose of price hikes. The Congress, however, made an intervention and added some context. However, the full picture still remains elusive.
If we take a look at all the data of the last four years, we have had a situation wherein the government reaped the benefits of subdued crude prices in the international market while we were made to pay much higher amount for diesel and petrol when global trend reversed.
Prices of diesel and petrol back home are determined by a combination of three factors:
- Prices of Brent crude in the international market
- Value of rupee vis-à-vis dollar
- Taxes on petroleum products
The value of rupee is important as we source bulk of our requirement by importing crude wherein we are required to pay in dollars. As dollar becomes expensive, we are made to pay more in rupees.
Now let us look at the correlation between the movement of crude prices and the prices of petrol in Delhi.
The chart clearly suggest that there has been very little correlation between how crude prices moved globally and the price of petrol back home. While the price of crude had collapsed in the international market in 2015-16, we got just a marginal relief back home. It shows that the government’s sole focus was on maximising revenue, denying the people the benefits of subdued crude prices. The situation continued the following year.
Govt Boosting Its Revenue by Milking Petroleum Products
Now take a look at how the government boosted its revenue by milking the petroleum products.
The total revenue from the sector stood at Rs 1.72 lakh crore in 2014-15. It spiked to Rs 3.43 lakh crore in 2017-18, which comes to a growth of nearly 100 percent in four years. This happened even as we continued to pay much higher prices for petrol and diesel despite low crude prices.
The dependency on the petroleum sector for revenues is so high that the government cannot afford to tinker with taxes as other sources of revenue are not as robust as they are expected to be. Risking fiscal slippage in an election year is tricky as several welfare schemes are likely to be rolled out to woo voters.
On the correlation between the value of rupee and the prices of diesel and petrol, let us understand that the rupee has depreciated by nearly 20 percent since July 2014. However, nearly 13 percent of depreciation happened this year alone. This shows that we paid inflated price for diesel and petrol, despite consistent behaviour of rupee in the first three years of the NDA government.
Dip in Domestic Production of Crude Oil
In the midst of the ongoing debate on pricing of petroleum products, let us not forget that we have our own oil fields as well.
Unfortunately, domestic production of crude oil has been falling consistently. In the last four years alone, domestic crude production has fallen in excess of 2 million metric tonnes.
Data shown here does not suggest that the management of the petroleum sector has been any better than it was before. What is baffling is the claim of a better show now. All we can say is that logic has been in short supply when it comes to efficient pricing of petroleum products.
(This story was originally published on Quint Hindi.)
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