Close on the heels of the hike in prices of oil products comes the report that indirect tax collections are slated to take a dip of Rs 6,000 crore in the second half of the current fiscal. Two-thirds of the revenue decline is a consquence of the duty reductions effected to moderate the oil price hike. The coffers are empty. This rules out a step- up in public investment.

But could a higher order of price increase (than announced last Friday) have been imposed in support of protecting indirect tax revenues? That is to say, instead of passing on a revenue of Rs 4,000 crore to the consumer of oil products, public investment could have been raised by a like amount. Duty collections on oil by the Centre and the states as a proportion of sales value (in 1999-2000) were close to 26 per cent. Taxes abroad are higher: 70 per cent on petrol and 55 per cent on diesel in Western Europe; 55 and 40 per cent respectively in Japan; and 27 and 30 per cent respectively in the United States.

It may thus seem that there was no case for reducing duties to moderate the increases in price of oil products. However, the 50 per cent hike in the price of kerosene will pinch the poorer consumer hard. There is no question of switching back to fire wood, which is scarce. Though the increase (in percentage terms) in the diesel price appears modest, at Rs 16 a litre it raises truckers' costs. Road transport operators want to up tariffs by 12 per cent. The trouble is that at current tariffs truckers do not attract enough freight.

The 8-10 per cent extra the petrol consumer will now pay has also helped to moderate the increases in kerosene and diesel prices. If petrol were required to bear a higher cross- subsidy, sales of small cars would take a beating, raising the prospect of employment decline in the automobile industry. True, even with the latest hike, the better-off urban consumer, enjoys a fairly substantial subsidy on LPG. But how hard can you push the middle class? Besides, the use of LPG is fairly widespread among commercial eateries which substantially cater to the poor.

The government had to moderate oil price hikes with a reduction in indirect taxes (and thus bring down the proportion of revenue garnered from oil sales' value). The revenue loss squeezes public outlay, already inadequate. The moderated increase in consumer oil prices will nevertheless adversely affect non-oil demand. The price (or tax) Opec has levied thus depresses public investment (and aggregate demand). Growth will slip. Opec has hit India (and the developing countries) below the belt.