In the last few days, petrol and diesel prices in the country have been hiked multiple times, with more such daily hikes in the offing. The explanation for these hikes is that the prices for the companies had remained frozen for some time, even as the international oil prices were rising, with the companies absorbing the rise. Now that they have been allowed to raise their prices, they are catching up, and the burden has to be borne by the consumer since the government cannot afford to lose any revenue by reducing taxes per liter. The last time that petro-product prices had been hiked by the oil companies was on November 4, 2021. For 137 days after that, it is argued, there had been no price increase for the companies. During this period, however, there had been a rise in crude oil price in the international market from USD 82 per barrel to USD 117 per barrel, which meant a loss of revenue for the public sector oil companies alone of USD 2.25 billion; the companies now have to adjust their prices upward to prevent such revenue losses.
The act of increasing petro-product prices in short does not remain confined to the oil companies alone. It has a multiplier effect: it is necessarily followed, down the line, by all those entities that claim a share of the retail price of petro-products. The rise in inflation then is much larger. Prices can at all reach a plateau in such a situation only if some people’s money incomes do not rise to compensate them for the price rise, that is if some are only “price-takers” and not “price-makers”. These can only be the working people. Hurting the working people, therefore, is the raison d’etre of this entire strategy. To adopt such a fiscal strategy and at the same time shed tears for the working people, is the height of hypocrisy. Interestingly, there is no automaticity about the rise in the retail prices of petro-products just because world crude oil prices have risen; one is not the inevitable consequence of the other. The rise in retail prices of petro-products is a fiscal strategy; these retail prices have to rise if there is a rise in world crude prices only because of this fiscal strategy. To talk about the inevitability of the rise in the retail prices of petro-products is to take this fiscal strategy itself as inevitable, and therefore to conceal from the people the fact that it is a chosen strategy, a deliberate act of choice.
The case of the state governments is understandable: they have very few sources of revenue that they can tap at their discretion. After the introduction of the GST, the area of discretion has shrunk quite sharply, and petro-products happen to be one of the three commodities where the rates are not fixed by the GST Council but can be fixed at the state government’s discretion. State governments’ taxing petro-products, therefore, is quite understandable; they have little choice in the matter since they cannot impose direct taxes. But the Central government has ample scope for raising resources through other means, which it is deliberately not using. Its resort to taxing petro-products instead of imposing direct taxes on the rich is, therefore, a choice made on its part. It is a class bias; there is nothing inevitable about it.
