Petroleum hike. Who is responsible?

Posted on Jun 5 2012 - 11:05pm by Chanakya Takle

A few days back the price of petrol went up by around Rs 7 and everybody was angry at the government. Opposition and congress allies were united in protest and wanted a rollback. The BJP angrily called for Bharat bandh (though everybody was working where i live). But between the government dishing out its usual trash and the opposition wanting everyone to make a point by basically not working for one day, nobody was talking about why petrol prices were raised!

In a press release by Indian Oil to ‘explain’, they said that rise in international prices and deterioration of the rupee against dollar were one of the main reasons for the price hike. Growing under-recoveries was also stated as one of the reasons. Since last price hike (2011-12) Indian Oil has suffered a loss of  Rs.2108 crore and more in the current year. Just last month the chairman of Indian Oil had said that the company is losing more than Rs 7 on every litre of petrol sold. Their report said that the states impose a 14 to 33% sales tax on petrol.

So who is to blame for the price rise? After the government decided to deregulate petrol in 2010, prices are now determined by global markets and private run companies (Reliance, Essar) now directly compete with state owned companies like Indian Oil for market share. The deregulation resulted in an immediate increase in petrol and diesel prices, which in turn led to an increase in prices of commodities. Deregulation was supposed to stabilize the prices of petrol and diesel in the long term. So far that has not been the case.

The government has been asked to reduce the duties that it imposes on petroleum products, but who actually gains from this? The duties collected by the government are invested (or supposed to) in public projects. They also help to keep down the deficit. The government is not interested in raising the prices, on the contrary it receives a lot of political bashing whenever prices are raised. The reality is that it is the Oil Companies that decide the prices of petrol and other fuel. The government in june 2011 had already made deep cuts in duties levied on the oil companies and suffered a loss of 49,000 crore. It was basically a bail out to the companies at the cost of the consumer (who faced increased fuel prices and inflation). This predictably had a bad impact on the fiscal deficit.

Now Indian Oil says that it is losing a lot of money but if you look at the financial records, the company is making profit. The company has grown by 5% in one year. Indian Oil is also the largest commercial enterprise in India, with more than 47% of market share. So how is a company which says it’s losing thousands of crores, show profit and give high dividends? While it is true that the company suffers loss on these four products namely petrol, diesel, LPG and kerosene, they also make huge profits from other products (by-products of crude refining). The claim that Indian Oil is making a loss is misleading.

Just yesterday, Union Minister for overseas affairs, Vayalar Ravi, said that the claim of the company that it is making losses is untrue and that Indian Oil in Jan-March quarter, has made a 12,000 crore profit against 3,000 crore last year.

It is sad that the government is being bashed for something that they have actually not done. The prices were hiked by IOC and they need to be scrutinized for it. The reason why congress is being targeted is because they have lost the trust of people. The government has in the past taken advantage of people and people no longer care to check whether the government is really responsible for recent developments because usually they see the government involved in all sorts of looting expeditions and assume this is one too. I feel that IOC needs to be scrutinized better. Indian Oil, being a state run company, is run on capital from you and me. It may well be inevitable to raise prices of petrol and diesel due to recent depreciation of rupee but the depreciation is temporary. I feel that IOC (Indian Oil Corp.) needs more transparency in its inner workings and also need to release a detailed explanation, including specifics, as to how and why the fuel prices were raised. They also need to explain their stance on suffering so called losses and the need for further cuts in duties.

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  • akshay kanikar

    but the timing is questionnable….did IOC start making losses on the exact day when the budget session ended or UP elections ended and when congress was somewhat assured of outside support from the SP?

  • chanakya

    The IOC was making losses on petrol since quite some time. The losses were further deepened due to fall of rupee against the dollar and (earlier) rises in international oil prices. Since then the prices have come down. I did not understand ur question about SP, congress is definitely trying to woo SP by not fielding any candidate against dimple yadav, but how are oil prices affected because of these internal politics?