The Finance minister’s decision to further tax the petroleum sector in the recent Budget by raising the cess on crude oil is a regressive move. More so since the higher cess will, in all probability, go to fund inefficiencies in the fertiliser sector. Needless to say, the government is fully within its rights to subsidise a sector if it wishes to. But such populist moves need to be funded from the Budget, not through a directed levy on a specific sector. In this particular case, it is particularly unfair to a company like ONGC, which has a significant public shareholding.
Worse, the decision reflects a piecemeal approach to the recent Rangarajan committee report on the oil sector. Given the ground realities, the report had suggested a higher cess on public sector exploration companies to fund the LPG and kerosene subsidy bill, with the caveat that it should be utilised to fund the subsidy bill. While the first part of the recommendation has been acted on, the latter half seems to have been given the go by. The reason is there is no specific mention of amending the Oil India Development Board (OIDB) Act to authorise the use of cess funds for this purpose. Consequently, chances are the amount raised would go as before to fund the fertiliser subsidy. Such piecemeal acceptance of the committee’s recommendation is a throwback to what happened with the fifth pay commission’s recommendations. Here, too, while the pay hikes were allowed, no retrenchment was effected.
Courtesy the cess, the FM has completely skirted the issue of market pricing in the oil sector, though this is key to resolution of the problems of this sector. The Rangarajan committee had suggested a Rs 75 per cylinder hike in LPG prices, as well as limiting kerosene sale to families below the poverty line. But with forthcoming elections in five states, the FM has chosen political prudence over fiscal prudence. The least the government can do now is draw up a time-table to ensure that post-elections in the states, controls are eased in a phased manner. After all, what is the use of expert advice if the government is not going to heed the advice?
