In India, petroleum price has always been used as political weapon by oppositions. The reason is very simple because it is easily understood by the people and it directly affects them. In democracy, no party will always remain in power; hence this tool has been utilized to wedge dissatisfaction against the government, irrespective of political ideologies by the opponents. So either it’s right or left or even those who are having centrist ideology, if they are in opposition, they will vehemently oppose any price rise in petroleum products in domestic market.
Recently the same noise has been reverberated in the news channels. Opposition argues that the oil price has been plummeted in the international market, but the government is not forwarding the benefit to the people and charging excessive custom and excise duties. They say, and rightly so, the price of 1 barrel of oil was approx $ 120 in somewhere around 2013-14 and now in 2017, due to various international dynamics, this is hovering around $50 per barrel. But the price paid by the Indian citizen for one liter of petrol/ diesel has been kept same or rather has been increased despite the steep fall in the oil price in world market.
At very naïve stage, the argument of the opposition seems very plausible and rational. But again the economics come in to play. In economics, what is obvious to the eyes may not be in reality. Let me present you a different narrative, which is based on economics and not on rhetoric.
India is a net importer of petroleum product. A significant amount of foreign exchange is spent purchasing Oil from various countries (contribution Gulf Countries in the significant in this regard).
Sometime economy of a country should be looked as whole and not as individual entity. The methodology to look economy of a country as whole is known as “Macroeconomics”. Government needs money to run various schemes and projects, such as building infrastructure, providing food security to the marginalized community, providing healthcare to those who can’t afford, building power stations to generate electricity, giving grants to educational institutions and students, providing subsidies to the farmers, (now they are also waving the loan off, which in my view is not a prudent choice), purchase of defence equipment etc. Many of these activities run by the government is performed which will not result in revenue, rather it put constraint on the limited resources. Our country performs this task as it is believed to be a welfare state.
So for running welfare scheme and building infrastructure money is needed. Government generates this money through taxation. But as you might know only 1% of the Indian Population pays taxes. Hence government resorts to indirect taxation. Excise duty and custom duties fall under this category of taxation. Even though indirect taxes are considered as regressive taxation system, but since our tax base in narrow (only 1% as mentioned earlier) government has imposes it. But the fact of the matter is that even after imposing indirect taxes each year government experiences Fiscal Deficit. Fiscal Deficit in simplest of words “occurs when the revenue generated is less than expenditure incurred.”
Now in case of India, as we all know tax generated is less and the government has huge responsibility, so every year it resorts to borrowing and other means to meet the expenditure. But borrowing to meet the consumption expenditure is not regarded as good policy and it is even true in our family, isn’t it? We can borrow for purchasing a home or a car but if we borrow to have food and cloth, then certainly our family economy will not be construed in good shape. Same is true for a big family called “India i.e. Bharat”
So what government is doing by taxing high on petroleum product is that it is generating additional revenue which is plugging the gap between revenue generated and expenditure incurred. This can be understood through a pictorial graph that how the current government is doing in terms of improving the Fiscal Deficit of the country over the year in comparison to the previous government.
Apart from improving on the Fiscal Deficit front, high taxation on petroleum products has many additional advantages and some of them are very vital. Since I have already bored you with this lengthy article hence I will keep short in explaining the additional benefits of high taxation on Petroleum Products in detail.
High taxation in petroleum product results in :—-
- Judicious Consumption of Petroleum Product
- Low burden on government Foreign Exchange
- Lower Pollution
- Boost to Public transportation
- Search for alternative energy which is Eco-Friendly
- Inflation Control
If you find any doubt in understanding any of these benefits which I have highlighted, just let me know in comment section, I will try to answer your query.
I hope this will help in develop some understanding related the price mechanism of Petroleum Product and high rate of taxation. Now imagine a situation, if the price will rise in international market and commensurately government will increase the price of petroleum product, the same opposition will started making noise and will term government as anti poor and all for raising the price. So next time someone will give any illogical argument to you, you may say “No Ullu Banawing..No Ullu Banawing..”
Last but not the least “today’s opposition will run tomorrows government and vice versa” 🙂
Chalo, bye bye…. 🙂
Image Credit: Google Image
6 thoughts on “Propaganda of Petroleum Price”
This is an important issue. While government has to fiscally prudent, it must convey the reason for high price. High petrol price probably goes to fund infrastructure project. This is good economically. But, people are getting restless.
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Yes Sir! Fiscal Consolidation has been pursued by the government ever since it came to power. FM has mentioned in several of his speech. But you know the nature of Indian Politics. Even failed demonetisation becomes a politically hit event.
I partially agree that government needs money for development but loading the middle class who majorly pays taxes and when I say with load it is nothing less but 134% increase in petrol. And if that is the case why didn’t our FM announced this thing in budget of 2017. This amount can be reduced if states becomes ready for GST.
below is my take on the same
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Thanks Deepak for even partially agreeing. The fact of the matter is that is we look at this issue with political angel and from a layman perspective, surely the act of the government will seem implausible and a burden on middle class. But if you look from the perspective of an economist and national interest you will change your opinion. Few rebuttal to your points..
You said majority middle income family pay taxes, its not true because only about one person of Indian pay taxes directly, and surely middle class is way more than one percent m
Point 2, you said that petrol price show 134% jump but did you see the other side of the story that how much inflation has reduced. During 2013-14 phases average inflation was around 8-9 percent, but its now well below that and playing around 2-3 percent. So in one sense you will see the rise in petroleum price but since the inflation has reduced the price of other commodities remained stagnant.
I have gone through your article. It wide, elaborate and justified from other perspective.
Thanks Abhay for reading my article. My only point is if we are saying one nation one tax then we should include petroleum petrol in it. There are lot of commodities on which we can put taxes and earn money for example Liquor. But as I said that I am partially agree, I agree on that point only that some where or somehow that money is or can be used for development.
Thank you for your appreciation on my article
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Welcome boss! And I am quite impressed that you are taking interest in current issues.