Ban on wheat shipments, 15 per cent duty on gold imports, cesses on fuel exports — decisions show short-termism
No less backward-looking is the cess on domestic crude. Producers, it is alleged, are making “windfall gains” from selling crude at international parity prices. Thus, both exports of refined products (valued at $67.5 billion in 2021-22) and realisation of international prices for crude produced from India are to be regarded as profiteering.
Since April 6, retail prices of petrol and diesel haven’t gone up. Rather, they have been slashed once, on May 22, following excise duty cuts by the Centre. During these nearly three months, Brent crude prices have risen by about $15 per barrel and the rupee weakened from 75.9 to 78.9 to the dollar. Not being allowed to raise prices has made oil companies hesitant to sell fuel at a loss in the domestic market, causing shortages in some states. On the other hand, elevated global prices have led private refiners in particular to boost exports of diesel, petrol, naphtha, aviation turbine fuel (ATF) and other products. These have become further viable with deeply discounted crude imports from sanctions-hit Russia, which has emerged as India’s top supplier. By importing Russian crude shunned by western buyers at below international prices and re-exporting refined products to those very countries, private oil companies have been earning “phenomenal profits” even while reducing domestic sales, according to Finance Minister Nirmala Sitharaman.
That arbitrage opportunity has now been blocked with the Narendra Modi government slapping a Rs 6-per-litre special additional excise duty on the export of petrol and ATF, and Rs 13/litre on diesel. In addition, for every tonne of petrol and diesel shipped out, exporters will have to undertake to supply half-a-tonne in the domestic market. These measures — along with the imposition of a Rs 23,250 per tonne cess on domestically-produced crude — are populist and retrograde. Populist, because they are a result of the government capping domestic retail fuel prices. State-owned oil companies may have no option but to sell at these prices and incur losses. Private refiners are effectively being forced to do the same now. Yes, they have been making money from exports, while “drying out” their pumps back home. But can they be blamed for the former? And whose fault is the latter?
No less backward-looking is the cess on domestic crude. Producers, it is alleged, are making “windfall gains” from selling crude at international parity prices. Thus, both exports of refined products (valued at $67.5 billion in 2021-22) and realisation of international prices for crude produced from India are to be regarded as profiteering. This, when the country is projected as a global refinery hub and huge investments are being sought in domestic exploration and production of oil and gas. Whether it is the ban on wheat shipments, the cesses on fuel exports or levying a 15 per cent duty on gold imports, the Modi government’s recent actions — ostensibly to curb inflation and a widening external current account deficit — betray short-termism. True, these are extraordinary times. But it is in such times that policy credibility gets tested.
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