Volume 1, No. 9, November 2000

The massive hike in fuel prices is yet another attack on the masses of the country. The huge amount that is being extracted from the consumers, of Rs. 7,600 crores, amounts to a robbery of Rs. 400 per year from every family in the country. The major burden of this hike has fallen on the poorest with a 50% hike in kerosene. While the lightest burden is on the rich with a mere 9% increase in the price of petrol. A 17% increase in diesel prices will effect all commodities as freight rates will go up. In addition, due to this hike, already buses, trains, autos, taxis, etc., have begun increasing their rates. The 18% increase in the price of an LPG cylinder will chiefly hit the middle classes. In other words, all the basic necessities of life will get more expensive, affecting the poor and middle-classes the maximum. As basic necessities form a small fraction of the expenditure of the rich (most of which goes on luxuries) they will be the least affected by this price hike. Even prior to this hike, in the wholesale price index for all commodities, the fuel, oil, lubricant group witnessed an increase of 30%, while that of manufactured commodities saw a marginal increase. Now this will increase even further.

The chart gives a picture of the present hike.

With this hike the ‘official’ inflation rate which was a mere 3% last year is expected to jump from the present 6% to 10% in the current year. During this year the price of kerosene (the poor man’s fuel) has risen by roughly 300% from Rs. 3/- litre to nearly Rs. 9 per litre. Besides, the price hike will particularly hit the agriculturist as the production costs of fertilisers will rise and irrigation costs will increase due to increased expenditure on diesel. Industrial growth will also slow-down as costs will go up, and people’s purchasing power will decline further.

The reason for the big hike in taxes is blamed on the rise in international costs of fuel. We are told, ad nauseum by the media, that international crude oil prices have increased three fold from a low of $10 per barrel in December ’98 to over $30 a barrel today. They do not say that the average cost per barrel last year (1999-2000) was $18 a barrel. And they do not explain why fuel prices in India did not drop when international prices fell so low in December ’98. Besides, they hide the fact that with the higher cost of fuel the government has made windfall gains through higher tax collections (customs and excise duties) and the Indian oil companies have made gigantic profits as their oil is purchased by the government at international rates and not according to their actual cost of production. Besides, by allowing the rupee to depreciate by as much as 6% in the last few months, this one factor alone has led to a big increase in costs of crude oil imports. So with the rise in price of present crude costs all have made massive gains which has to be paid for by the Indian consumer. The oil producers and distributors (foreign and Indian) have made gigantic profits, the government has increased its tax collections beyond imagination; but the people are made to suffer. Besides, a major component of fuel price to the consumer is tax and not the cost of the fuel. This tax continues to rise with the increasing cost of fuel.

While indigenous production of crude oil grew at the rate of 9% annually during the 1980s, during the 1990s it not only stagnated, but even dropped. Dictated by the structural adjustment programme of the imperialists, India was made to depend on imported crude, and increased indigenous production was suddenly brought to a stop. Crude production actually fell from 35.3 million tonnes (mt) in 1995-96 to 33 mt in 1998-99. At present it is around 32 mt which barely meets 30% of the country’s needs of 102 mt.

It is therefore not surprising that the import bill for crude oil has been skyrocketing during the past decade from $ 6 billion in 1990/91 to an estimated $19 billion (Rs. 80,000 crores) in the current year. While in 1996/97 it comprised 26% of the total import bill, in the current year it will increase enormously. In the first five months of the current financial year (April-August) the trade deficit increased by 9% to $ 4.3 billion, compared to $3.9 billion in the same period last year. Due to these high oil imports the current account deficit is likely to leap to unmanageable amounts this year. The following chart indicates this growth in the oil import bill :

Besides, even the small quantity produced indigenously by ONGC and OIL India, is paid for according to international rates. The government pays for domestic crude at the rate of 80% of the global price of crude oil. The actual cost of production of indigenous crude is $7 per barrel. So, with global prices over $30 per barrel, the government is paying the oil companies a massive $ 24 per barrel which is over three times the average cost — giving these government owned companies windfall profits.

The government could easily have balanced the high cost of foreign crude with the low cost of indigenous production and thereby protected the consumer from the massive price rise. But, on the contrary, the government and its oil companies, sought instead to make windfall profits by charging artificially high rates to the ONGC and OIL India — at the consumer’s expense.

Even before this price hike, in the final cost of most petroleum products over 50% constitutes tax. For example in Mumbai 52% of the retail price of diesel is accounted for by taxes. The sales tax on diesel in Mumbai is 34% (in Delhi 12%). This is in addition to the 25% customs duty and 16% excise duty. Similarly on petrol excise duty was 32%, customs duty 25% and sales tax in Mumbai is 27%. In Delhi the price of petrol rose by Rs. 2 per litre in January this year as sales tax was hiked from 12 to 20%. Even on an item like kerosene the government charges an excise duty of 8%.

So, while purchasing diesel/petrol the major cost we pay for is taxes and not the cost of the fuel. For all the media’s big hype on the ‘big’ subsidy on LPG, diesel and kerosene, it ignores the fact that the existing taxation, far exceeds the subsidy. The tax content in the final cost is clear from the following table :

Due to this huge taxation, with the increase in prices, the government’s collection from taxes on petroleum products in the current year are expected to exceed its target of Rs. 25,000 crores by a massive Rs. 10,000 crores. This extra profit to the government is alone able to wipe out a major portion of the so-called oil pool deficit without increasing a single paisa on fuel prices. To hide this reality, the government has now reduced nominally the tax on fuel. Here too, the excise duty on kerosene has not been touched but that on petrol has been reduced by half — from 32% to 16%.

From this it is very clear that the fuel cost, comprises only a small proportion of the total cost paid by the consumer. The government must immediately reduce its tax on basic necessities, including fuel and increase that on luxuries. It is, in fact, doing exactly the opposite. It gives huge tax concessions to the Information Technology sector, tax holidays for export business, reduction in taxes on cars, fridges, washing machines, etc., and numerous other tax reliefs to big business. But it is increasing taxation and raising the prices on basic necessities like kerosene, diesel, LPG, electricity, water, health, etc. This is the major reason for the present price hike, not just the rise in prices of global crude oil.

The present hike in fuel prices is part of the so-called ‘economic reforms’ being pursued by the BJP-led government and supported by all the parties at the central and state levels. The opposition to this hike by the alliance partners and the opposition parties is the biggest hoax of the day. All vigorously support the ‘economic reforms’. For example, Naidu, while himself increasing all charges (electricity, water, etc) enormously, is making a pretense of opposing this hike. In fact he has already raised the bus fares in view of the hike in diesel costs; yet continues to make noises against the hike. The Trinamul Congress for all its threats has never once voiced its opposition to ‘economic reforms’. In fact, its intention is to implement it even more wholeheartedly than the CPI(M) in West Bengal. Its mock opposition is merely with an eye on the assembly elections, due next year, and to gain more ministerial posts for its elements.

Even if there is a nominal rollback to appease alliance partners the burden on the masses will continue to be unbearable. In fact, a few days before the hike, the petroleum minister, Ram Naik, stated that they intended to raise Rs. 5,500 crores through the hike. In actual fact they have raised Rs. 7,580 crores. That gives a huge Rs. 2,000 crores extra for a roll back in case the alliance partners make too much noise. And with this possibility in mind, the Congress (I) and other opposition parties are also making much noise, seeking cheap credibility expecting a possible rollback. Ofcourse, with or without the rollback they will all soon be silent, thinking that they have successfully fooled the masses through mock opposition. Yet, even a Rs. 5,500 crores hike is itself a massive burden on the backs of an already impoverished people.

But the masses are no longer fooled so easily and in such a cheap way. Though there is disgust for these parliamentary manipulators, there is, as yet no force to rally them. The people must rise as a storm to oppose this price hike and paralyse the administration until it concedes its demands. Besides, the struggle must go beyond this immediate hike, to oppose the very policies of ‘economic reforms’ which is at the root cause for this increasing burden on the people. If not fought back, the government and ruling classes will continue increasing the burden on the people, will continue slashing welfare schemes, will continue reducing subsidies to the poor.... and will make an already miserable existence even more intolerable. The time has come to strike back.

And to do so, the people must first free themselves from the influence of the parliamentary trash, who at best put up mock opposition, and fight the rulers in a revolutionary way. It is only through revolutionary struggles that effective blows can be struck at the rulers and the hike in the prices of fuel and other necessities reversed.

 (20-10-2000)

<Top>