Social security cess on fuel forces a vexing political calculus on government

The proposed additional social security levy of Rs. 2 on petrol and diesel retailed in Kerala seems to have forced an excruciating political calculus on the Left Democratic Front (LDF) government.

For one, Finance Minister K. N. Balagopal has displayed a marked reluctance to withdraw the cess, despite mounting Opposition protest and public criticism. He says the government is hard-pressed to forsake an estimated Rs 11,000 crore the State requires to meet its social security commitments, a potentially advantageous political priority for the Left Democratic Front.

Mr. Balagopal argues that the Centre has constricted Kerala’s revenue sources by stopping GST compensation, diminishing the State’s divisive pool dividend and slashing its revenue deficit grant. The government’s taxation powers are limited, making the proposed cess the only option to raise revenue for welfare.

Not surprisingly, Mr. Balagopal told the Assembly that he is ready to take the flak for the fuel cess in the State’s larger interests, though personal popularity might be a causality. Nevertheless, reservations in the ruling front about the cess could did not preclude a rethink.

Some LDF leaders fear the fuel price hike could rewire economic, political and social circumstances to the Opposition’s advantage. The increased fair price of land and power and water tariff hikes has further animated the Opposition.

Predictably, the Congress has attempted to stoke public fear and fury by pointing out that the proposed hike would render fuel retailed in Kerala the costliest in the country. It says the hike would squeeze household budgets and drive up inflation and likened it to a stab in the dark.

Congress workers will lay siege to collectorates and the Secretariat on Tuesday to rally public opinion against the government. The United Democratic Front (UDF) will hold a two-day State-wide protest commencing on February 13. Bharatiya Janata Party (BJP) has also announced anti-government agitations.

Opposition parties rest their case against the government on the argument that the cess is superfluous, given that Kerala levies a “prohibitive” 30.8% sales tax on fuel. Moreover, successive State governments had formulated the fuel tax structure so that any increase in Central customs and excise duties would advantage the exchequer.

The LDF has countered the Congress by insinuating that the Opposition has pointedly refused to blame the Centre for Kerala’s precarious finances. It also fears that the fuel cess would blunt the ruling front’s impending campaign against the Centre’s “anti-poor” policies.