Does India really subsidize petrol, diesel and cooking gas?
Our national debate has singularly focused on raising prices in what is already one of the costliest for gasoline, ostensibly because all petroleum products are subsidized by a state that can ill afford to do so. This, in turn, has led the opposition — and some allies like the Trinamool Congress — to resist any increase in administered prices, ostensibly to protect the poor. So, what we have is a perpetual debate with little or no nuances, and no freedom from high energy prices, hurting a variety of businesses.
Goa Chief Minister Manohar Parrikar, an IIT alumnus, has turned this debate on its head. Last week, he sharply cut some the value added tax his state government imposes on petrol and diesel. The result: petrol price in the state will be down a whopping 16 percent, effective April 2.
“I want to expose the central government on the petrol prices. It’s an artificial hike created by the central government. The center is simply looting the people,” Parrikar told Firstpost.com, a news website, in a telephonic interview.
Parrikar is right. Actually, there is even more room to cut prices because taxes account for nearly 50 percent of the cost of petrol, for example. According to a report in The Economic Times, if state governments follow Goa's example, the fuel will become cheaper by roughly Rs. 15 a liter in the four metros — Delhi, Mumbai, Chennai and Kolkata — and higher in some states like Andhra Pradesh that tax petrol at a higher rate.
So, should other states follow suit? Would economic benefits gained by lower energy prices offset revenue losses? Could it inflate consumption, and lead to galloping oil imports? Will the real price cuts favor the rich at the expense of the poor, as some argue?
It is not clear anybody has answers to any or all of the above questions. No chief minister has responded to Parrikar’s bold initiative. Not other BJP-ruled states. Not West Bengal, ruled by the pro-poor Mamata Banerjee. Or, perhaps, West Bengal, more than other states, is loath to follow suit because of its precarious finances.
The experiment in Goa is going to be interesting. It is a blessing of sorts that such a trial is taking place in a small state that has only about a million automobiles, 70 percent of which are two-wheelers. It is believed that the revenue the state foregoes might be small. But as a proportion of the state’s revenues, it may be no different from other states.
Parrikar believes the impact of lower petrol prices to be revenue-neutral to his state. This is because he expects the lower price to lower inflation and boost tourism, making up for the tax loss.
Still, the revenue question is a big one for states and what happens in Goa would be crucial to adoption by other states. But an even bigger question might be: How will consumers respond? The last thing most of our overcrowded cities need is an automobile boom, giving short shrift to public transportation.