*Fuel prices: Solving the petroleum price puzzle | The Financial Express

Clipped from: https://www.financialexpress.com/opinion/fuel-prices-solving-the-petroleum-price-puzzle/2496864/

To reduce vulnerability to such situations, the Centre, in the short term, aims to protect people from bearing the full brunt of oil volatility. In the long term, it aims to achieve energy self-sufficiency

fuel priceMobility accounts for 55% of petroleum fuel consumption today.

By Amit Malviya

The recent increase in fuel prices have again become a convenient tool for opposition parties to derive political mileage through misrepresentations and half-baked rhetoric. The way critics are trying to shape the discourse on this issue shows that their real intent is to divert popular attention towards headline-grabbing news and thus circumvent any honest and objective debate on the underlying nuances of this issue. However, to form a considered and calibrated opinion, it is crucial to appreciate how oil pricing works, what policies are being taken to navigate volatile oil markets and while fuel is taxed, where does the money go?

As on 01 April 2022, petrol in Mumbai was priced at Rs 116.72/l. Central excise duties accounted for 24% of this price built up, while duties levied by the State of Maharashtra accounted for 27%; a share larger than that of the Centre. This equation may change if one undertakes a similar assessment for other cities. Still, one can reasonably conclude that states and center both contribute more or less equally contributors to the fuel duties as the center, perhaps even more in some cases like Maharashtra. Hence it may not be fair to put the entire onus on the Centre for the price increases.

That said, there is no denying that high fuel prices pinch everyone. The government is duty-bound to do whatever it can to protect households whenever such eventualities arise. Then, the more important question to ask is: what is the Modi government doing to reduce our vulnerability to such situations? An assessment of various efforts and initiatives taken by the government in the recent past clearly show that that there are two dimensions to its strategy—in the short term, protect people from bearing the full brunt of oil volatility without comprising fiscal considerations; and in the long term, cut the nation’s dependence on oil and achieve energy self-sufficiency. 

Last year, around Diwali, the Centre cut its excise duties by Rs 5/l for petrol and Rs 10/l for diesel. While this measure led to a foregone annual revenue of more than Rs 1.04 trillion, it provided an immediate cushion to people from bearing the full impact of the rapid spiral in crude oil prices. The government has also been quite smart in its crude oil procurement. When the Covid-19 pandemic began, the Centre leveraged the panic in global markets to its advantage and purchased crude oil at $19/barrel. That filled our strategic crude reserves. More recently, the Centre is deftly balancing diplomatic pressures to purchase crude from Russia at highly discounted rates. As a result, India has managed the current fuel price volatility much better than other major economies that do not produce oil such as Germany (where petrol costs ~ Rs 170/l, diesel ~ Rs 110/l), France (petrol ~ Rs 162/l, diesel ~ Rs 105/l), Spain, Italy, Netherlands, South Korea, and many others. 

Mobility accounts for 55% of petroleum fuel consumption today. Rapid electrification of mobility is thus an important strategy of the government to reduce fuel demand and also decarbonise transport. In this direction, the railways are being 100% electrified (with 80% BG routes already being electrified). The share of e-buses is being increased and targets have been set to ensure that 30% of all private cars, 70% of all commercial vehicles, and 80% of 2-wheelers and 3-wheelers sold by 2030 are electric. Biofuels are being mixed into petrol and diesel are being blended to substitute their consumption—10% bioethanol blending in petrol has already been undertaken, with a target to reach 20% by 2025. The exploration and production of oil from domestic fields is being accelerated and favorable terms for crude supply are being negotiated. These efforts together would fundamentally cut India’s oil intensity and put India decisively towards achieving energy self-sufficiency. 

It is disappointing to note that some prominent members of the opposition parties are trying to twist realities to fit into a convenient narrative. A former finance minister gave a figure of Rs 26 trillion collected through fuel duties in the last 8 years to question where the funds have gone. The fact is that all of these funds and more were reinvested to finance critical social and economic development needs. Data recently released by the finance ministry shows that during the same period, the total developmental spend of the Centre was Rs 91 trillion. Out of this, Rs 26 trillion was invested as capex to modernise infrastructure and construct national assets, Rs 25 trillion for subsidies to the poor, and Rs 10 trillion on social services. 

These investments helped the poor gain equitable access to basic infrastructure needed to live a dignified life besides providing money to partly fund pandemic relief initiatives such as free foodgrains through the Pradhan Mantri Garib Kalyan Anna Yojana, vaccinations, cash, LPG refills, and other support to needy families for an extended period of time. The fuel duties proved to be an important source for the government to support the socio-economic development needs of the country during such unprecedented times without comprising fiscal rectitude.

The author is national head, IT cell, BJP, and co-incharge, Bengal.
Co-authored with Kishore Desai, public policy professional

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