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Low inflation shows oil price benefit passed on: Pradhan

Minister defends fuel taxes as shield against shocks if oil prices climb again

May 05, 2016 12:22 am | Updated September 12, 2016 10:33 am IST - NEW DELHI:

Petroleum and Natural Gas Minister Dharmendra Pradhan. Photo: R.V. Moorthy

Petroleum and Natural Gas Minister Dharmendra Pradhan. Photo: R.V. Moorthy

Oil Minister Dharmendra Pradhan, citing reasonable levels of inflation over the past two years, has strongly dismissed the perception that the government has failed to pass on the benefits of lower oil prices to Indian consumers “Since the last two years, the ballpark figures for inflation have been under control. How come? If we had not passed on the crude oil price benefit to the consumer, the transportation sector would not have seen so much rationality in prices,” Petroleum and Natural Gas Minister Mr. Pradhan told The Hindu.

“Today, 50 per cent of the profitability due to the slide in oil prices has been passed on to consumers. The remaining 50 per cent was kept with the Centre. Of that 50 per cent, 42 per cent is transferred to the states as per the 14th Finance Commission’s recommendations,” the Minister said, stressing that the Centre is focused on funding developmental priorities as a welfare state.

He also defended the high taxation on fuels like petrol and diesel as a tool to protect people from a price shock when oil prices start to climb up again.

“There is no developed country that has transferred the benefit of sliding oil prices to the consumers in any real way,” Mr Pradhan said. “If you make the consumer vulnerable by exposing him to low prices, then he will feel such a pinch when the prices go up,” he said, hinting at the government’s logic to raise taxes on fuels while global prices fell.

Central and state-level taxes now account for around 60 per cent of the final price of petrol and 55 per cent of the final price of diesel in the national capital, as per official data. The minister said that the high proportion of taxes on petrol and diesel could be reduced when oil prices rise again.

“That is a strategy. Again and again, I have stated in Parliament that if necessary, at one point of time, knowing the volatility of the oil economy, this could be done. Our first step was to bring some benefit to the customer, then to spend on welfare activities, and third, in the event of prices shooting up, do what we can to alleviate this,” he said.

“We talk about energy. Is energy only the diesel that is put in sports utility vehicles (SUVs)? It is also the clean fuel that should go into houses,” Mr Pradhan said, stressing that the Centre has been using the fuel tax receipts to finance critical development programs such as affordable housing, cooking gas connections for the poor and so on.

“LPG came in the country in 1955,” he added. “From then to May 2014, India had 130 million active LPG connections. In the last 22 months, we have added 35 million new LPG connections and we have brought in the Ujjwala Yojana where, in the next three years, we will add five crore LPG connections in the names of the women in BPL households, with financial support from the government.”

In addition, he pointed to the Power Ministry’s rural electrification programme, saying that the target to electrify the 18,000-odd villages that have so far remained without electricity has also meant a higher expenditure.

Highlighting the government’s schemes to provide 1.5 crore houses by 2019, Mr Pradhan said that the erstwhile scheme—Indira Awaas Yojana—has been expanded under this government, which has resulted in a higher expenditure. “We made a provision in the Budget and started spending. Where will the money come from?” he said.

PTI reports: The Centre saved over Rs.21,000 crore in LPG subisdy in the last two financial years as paying the dole directly into bank accounts of actual users helped eliminate duplicate connections as well as diversions, Mr. Pradhan said at a seminar.

The government began paying subsidy directly into bank accounts of cooking gas consumers in select districts from November 2014 and in the rest of the country from January 1, 2015.

As on April 1, 2015, there were 18.19 crore registered LPG consumers and 14.85 crore active consumers implying a gap of 3.34 crore consumers which were duplicate, fake or inactive.

“Eliminating such 3.34 crore consumers helped save Rs.14,672 crore in 2014-15 fiscal (year ending March 31, 2015).”

The saving in 2015-16 was about Rs.7,000 crore, lower than the previous fiscal mainly because global oil prices slumped, cutting the subsidy required.

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