The government has passed only 13 percent incidence of the recent price increases to the consumer. The rest is to be borne by oil companies or the government through the issuance of bonds. The Left parties and BJP have opposed this small increase in the price for the consumer, demanding that the tax on petro products should be reduced instead. However, the consequent loss of revenue would have to be made up by an increase in tax on other items. Thus the question is: Is oil is the right place for the government to raise revenues?
The sixth report of the standing committee of Parliament attached to the Ministry of Petroleum and Natural Gas has pointed out that the share of imports in our oil consumption has increased from 19 percent in 1985 to 69 percent in 2001. This is not healthy. Low price of oil leads to high consumption, increased dependence on import and threatens our sovereignty.
The importance of oil in preserving national sovereignty has been highlighted by Newsweek editor Fareed Zakaria in his essay, ‘‘How to Escape the Oil Trap.’’ Zakaria contends that the most important issue for America’s foreign policy is to reduce domestic consumption of oil. That would lead to a decline in the global price of oil and have the following consequences: (1) The cash obtained by Saudi Arabia and Iran which gets into the hands of terrorists will be reduced; (2) Autocratic governments like those of Saudi Arabia will not be able to bribe the Wahabi imams and suppress demands for democratic reforms; (3) Iran would not be able to fund its nuclear programme; (4) President Putin of Russia will not be able to destroy competing centers of power or continue the ’disastrous’ war in Chechnya; and (5) President Hugo Chavez of Venezuela will not be able to ’rebel’ against American influence. The success of American foreign policy, therefore, says Zakaria, will depend upon the reduction in the consumption of oil.
The logic applies to India as well. Dependence on imported oil weakens our ability to withstand global political pressures. The refusal by Arab states to supply oil in a situation of war can threaten our sovereignty. High price of oil will encourage the development of other domestic sources of energy. This writer had an opportunity to study the numerous gobar gas plants in Shyampur village of Haridwar. It was found that many farmers had stopped using the plants after LPG cylinders became easily available. Low prices of petro products have led to neglect of alternative sources of energy like hydro-electricity, solar power, wind mills and nuclear power from thorium.
The standing committee of Parliament pointed out in its report that the Union Government has collected about Rs 60,000 crores from the oil development cess but the Oil Development Fund has been provided only with Rs 900 crores out of this amount. It would be more appropriate to use the cess for the development of alternative domestic sources of energy.
Domestic producers of crude oil - ONGC and Oil India Ltd. - make huge profits from the increase in the international price of oil. Instead, it would be proper to make a hefty increase in royalty. The benefit of rising international price should be appropriated by the government and the people rather than ONGC. The price of oil should be determined; and the consumer’s welfare should be defined in the broader context.
Cheap oil does not lead to consumer welfare because (1) the nation’s dependence on imported oil increases and sovereignty of the consumer is threatened; and (2) the development of alternative domestic sources of energy is hit. The government should, therefore, pass the whole incidence of the increase in the price of imported oil to the consumer. It would be even better if the additional revenues were to be spent in the development of alternative domestic sources of energy.
Tabor Aroma.com