Citizens’ fuel capital: a new approach

Government should sense the pragmatic scope in the declining crude oil prices

adve-srinivasa-bhat

Adve Srinivasa Bhat | November 14, 2014



The latest downward revision in the diesel and petrol prices was huge and coming after a row of closer successive reductions in the last four months the feel-good factor across the vehicle-owning middle and upper classes ought to be all time high – particularly since the oil price was ever soaring not that long ago.

Even the government ought to feel the relief, even with the domestic selling prices of the fuels running in sync, for the anti-inflationary potential in the lower prices with the twin fuels being largely and widely consumed. In fact the soaring prices in the past progressively choked the government’s finances by lakhs of crores of rupees over the years owing to the misplaced social convictions of our politicians which kept the selling prices immune to the rising procurement cost and the subsidy building-up therefore. Subsidy is a good social concept only when it is administered in a suitably structured manner in ensuring right targeting. In countries like ours with high disparity in incomes, across the board subsidy only raises the disparity in detriment to the poor. That is disgustingly ironic. By selling expensive fuel lower than the cost on a skewed logic govt in fact ended up helping the unintended wrong set of people for years.

Read: Helping the rich with cash

The government did discard the subsidy though a ‘period’ late owing to the spiraling-up prices and the sack turning unbearably heavy, not necessarily by the realization of the flaw in its immature policy. However, the question at this point is; is the govt seeing the opportunities in the spiraling-down prices?

The hazy question is; isn’t ‘Citizens’ fuel capital’ a worthy thought? The question bears certain critical social under-currents and thus demands a keen consideration. In specifics; should we not influence careful consumption of depleting natural energy resources by strategically pricing them? Should we not do that to sustain price levels until at least new energy options are developed to check that? And, more importantly, should we not aggressively curb consumption of the fuel that has already polluted the quality of air to some real concern? A new research says polluted air has already started hurting not just the quality but even the quantity of food grain production. I guess plants are more sensitive to the fuel fog than humans!

Other reason for managing oil windfalls innovatively with strategic approach is the fact that reduction in fuel input cost, even the big ones, hardly flows back to the consumers though the rise in it is often passed across with price hikes well more than just the rise. Before being shunted out, railway minister Sadananda Gowda had already ruled out any reduction in tariff on account of lower diesel till December.

The transport minister in Karnataka has left the decision to the chief minister with the whisper that the state transport companies are not financially sound - to do that, even with Rs. 6 less a litre in less than three months. Obviously the state government is running an ‘Air India’ with their fleet of busses! It is skewed indeed in favour of the rich like most government policies, like the one that was on diesel. All vehicle owners including the rich and very rich get the benefit of the reduction in the price of the fuels right from the midnight of the day of reduction while those who use public transport are yet to hear of any reduction in the ticket prices in spite of the big reduction. Even if it happens they can’t expect to get as much as the vehicle owners have. The chances are much less for the cost benefit even to trickle through the supply chain and into the prices of goods and services.

The suggestion is not to let the oil companies manage super profits and surely not that the government should increase the tax to maintain optimally feasible high price levels. The applied question here is; how to manage the short to medium term cost savings in scarce but essential and extensively used but a pollutant energy resource - for the larger social good?

Foremost, to be able to put the short and medium term cost savings in petrol and diesel for some real social good govt needs to work out a method to deliver subsidy on cooking gas and kerosene to only the needy – effectively and efficiently. The argument of “Helping the rich with cash” is more true of the cooking gas than the diesel (when it was regulated). The government needs to work with practical approach here than the kind of “Preaching” tactic it unsuccessfully tried couple of months ago.

Read: Govt’s oil companies can make good with the wrong idea, with an innovation

The short to medium term savings in diesel and petrol can indeed be very huge and if the govt can avoid the easily avoidable subsidy on the cooking gas that is unnecessarily flowing out to the rich and affordable class the amount, collectively can be, even in the short term, very huge – huge enough to convincingly fund a few larger and critical social projects which otherwise remains under-conceived and deficiently implemented owing to lack of money.

Raising taxes on the fuels to shore up this huge saving happens to be the straight forward approach but with government finances being ever obscure to the public the method simply makes the very thought of creating the worthy fund out of the gain unfeasible. That would also make the public not appreciate the need for keeping prices of these fuels at optimally higher levels by that approach. The state governments have in fact turned their taxes on these fuels into a major revenue stream that they can be, ironic though, hardly happy with the declining prices.

That leads to the possibility of creating a ‘fuel fund’ out of the cost gains – as and when it accrues, all created consciously and willingly by the consumers and of course for a defined larger social purpose – and for the satisfaction of having done that. Such a fund does not a cost (interest), makes feasible hard-to-build critical social infrastructure and maintains healthy consumption level as well.

Among the social infrastructure projects seeking funds from the kind of initiative are many and hence the difficulty in choosing. Ideal approach is to work with projects connected with the fuel, i.e., public transport, roads, better roads and massive scale afforestion programmes. However, government needs to find a method to give back the over recovery and possibly adding some more to that in making public transport grossly cheaper than the private transport and thus make it a compelling option which in turn can suppress consumption and reduce pollution.

 

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