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In what is being described as “daily chemotherapy”, the retail price of petrol and diesel have been rising over the past 10 days. The daily price increase of 80 paise over 10 days is aimed at mitigating the accumulated losses of PSU oil companies, which have totted up under-recoveries of $2.3 billion (Rs 17,000 crore) due to domestic retail prices not being adjusted to global crude prices since November 4, 2021.
The crude price was $75 per barrel then and today it is nearly $120 per barrel, an increase of 60%. This was not passed on to the consumer, as a kind of special payout for voters in Uttar Pradesh and four other states where elections were held. Now that the polls are over, the payout is being recovered in double quick time. The Election Commission may want to look at this chicanery in the future.
But this strategy of the Narendra Modi government is backfiring badly because a 60% increase in crude price left unadjusted over four and a half months cannot be dealt with overnight. Even after increasing the domestic retail price of petrol and diesel by 80 paise every day for 10 days, oil companies are still losing about $50-55 million a day. That translates to nearly $1.7 billion a month of under-recovery or losses suffered by PSU oil companies like IOC, HPCL, BPCL etc. This is over and above the cumulative loss of $2.3 billion already suffered so far. Yet the minister for petroleum oil and gas continues to maintain the fiction that PSU oil companies freely determine oil prices as per the dictates of the market!
The government policy of not adjusting oil prices for four and a half months has wreaked havoc on the oil retail industry. While PSU oil companies continue to suffer massive losses, private retailers like Reliance-BP Petroleum have refused to do so. They are simply shutting down their petrol pumps. Imagine the loss of business and employment when over a thousand outlets shut down. The private retailers had similarly closed their outlets in early 2008, when crude prices had crossed $140 per barrel.
But the UPA government did not increase domestic prices beyond a point and gave PSU oil companies oil bonds to make up for their under-recoveries. At least they could use these bonds in the market to recover some cash flows. The current regime has made no such arrangements and is allowing the PSU oil companies to bleed.
Both consumers and oil PSUs are suffering even as the government continues to collect exorbitantly high oil taxes. The Union’s tax revenues from oil have increased 300% in six years since 2014-15. In 2014-15, it collected Rs 74,158 crore. This had gone up to Rs 2.95 lakh crore in April 2020 to January 2021 period. It is totally unconscionable that the balance sheets of the consumer and PSU oil companies should be allowed to bleed so badly, while the government takes the lion’s share.
With the cost of crude skyrocketing, continuing with a tax of over 100% on petrol and diesel is nothing short of extortion and will surely prove a dampener for the economy and revival of demand.