Why is Modi not ready to reduce the petrol price in India in 2018?
Tax revenue of the Government is a zero-sum game. If you reduce taxes on petrol and diesel, then you have to increase some other taxes to keep the total tax revenue at the same level. Otherwise, if the total tax revenue decreases, then you have to reduce the Government spending on defence, infrastructure, welfare measures, etc., because you cannot reduce spending on items such as salaries, pension, interest payments, etc.
So, the choices are limited. Do you want to reduce Government spending on defence, education, health, infrastructure, welfare schemes, etc.? I don’t think we can afford that. So, if Government expenditure cannot be reduced, then you cannot reduce the total tax revenues. The Government cannot grow money on trees. It has to collect money from public by way of taxes or it can raise money through loans or by selling its assets (such as disinvestment in PSUs). Government cannot thus reduce taxes on petroleum products in isolation. Being a zero-sum game, if you reduce tax on one thing, you may have to increase it on another correspondingly.
So, are you willing for increase in income tax rates? Or increase in GST on other products?
Before you say “yes” hurriedly, think seriously about the extent of the problem. Let me elaborate.
In the financial year 2016-17, the total taxes on petroleum products yielded Rs. 273,225 crore to the Central Government and Rs. 189,587 crore to the State Governments. This is a total revenue of Rs. 4.63 lakh crore to the Governments in one year.
[1]
To put the things in correct perspective, total direct tax collection (including income tax and corporate tax) of the Central Government in the financial year 2016-17 was Rs. 8.47 lakh crore.
Total GST Collection (for Centre and States) from July 2017 to March 2018 has been Rs. 7.41 lakh crore, which means that the yearly collection would be about Rs. 10 lakh crore.
Now, let us do a simple arithmetic. The petrol price in Delhi on 25 May 2018 was Rs. 77.83. It included Central Excise of Rs. 19.48 and Delhi Government VAT of Rs. 16.55. So, the total taxes are Rs. 36.03. Now, suppose you want to bring the petrol price down to Rs. 60 merely by reduction of taxes. That would imply reduction of Rs. 17.83 from taxes of Rs. 36.03. This would be almost 50% reduction in the existing taxes.
Suppose we apply the same formula all over India. So, 50% reduction in taxes on petroleum products would mean reducing total taxes from Rs. 4.63 lakh crore to half, i.e., reduction will be about Rs. 2.30 lakh crore.
Where will this Rs. 2.30 lakh crore come from? If you want to raise the same taxes by increasing income tax and corporate tax, you will have to raise income tax rates by about 25% (as their total collection was Rs. 8.47 lakh crore). Likewise, if you want to raise the same taxes by increasing GST, you will again have to raise GST rates by about 25%.
So, are you willing to pay the GST rate of about 22.5% instead of the existing GST rate of 18%?
Or, are you willing to pay income tax at the rate of 38% (plus cess and surcharge, as applicable) instead of existing 30%?
Therefore, it is not easy to suggest that the Government should reduce taxes on petrol. You should be willing to pay more tax on something else, if you want the Government to keep spending the same money on defence, infrastructure, welfare measures, etc.
Please also note that it is better to tax petrol more than other goods or services. Higher petrol prices would mean lesser use of petrol, which helps the environment. Higher petrol prices may encourage more use of public transport, such as buses, railways, metro, etc. Higher petrol prices leading to reduction in its use, may also help limit our import bills since we mostly import petroleum products.
Higher petroleum prices have another important positive side-effect. Use of renewable sources of energy will be accelerated. Ultimately, the world has to move towards the goal of substituting fossil fuels by renewables such as solar energy, wind power, etc. We have to move towards cars and other vehicles running on electric batteries.
Last year, the Government had set the target of the year 2030 by which only electric vehicles should be produced in India. I have been keenly following the fast technological developments being made in the field of solar energy, electric cars, batteries (to store power). Their prices are drastically falling. In May 2017, the solar tariff in India had already touched Rs. 2.44 per unit, as against the average of Rs. 3.20 per unit charged by NTPC for electricity produced from coal. In 2017 itself, the lowest solar power tariff was achieved in Saudi Arabia at 1.78 cents per unit, which is equivalent to about Rs. 1.20 per unit. Likewise, the battery prices have drastically fallen over last few years. The Electric Vehicle battery price, which was about $1000 per kWh in the year 2010, has already fallen to about $145 per kWh or so, when the estimate was that these prices would fall to about $100 per kWh by the year 2025, the level which is supposed to be the tipping point for mass-adoption of electric vehicles (since batteries constitute major component of electric vehicle price).
[2]
I believe that the threshold level has already been crossed in these technological sectors. Now, the changes are likely to come NOT ON LINEAR SCALE BUT ON EXPONENTIAL SCALE. So, before we can imagine, the world is likely to see movement towards solar energy, electric cars, batteries (including the graphene batteries, made from the wonder material – graphene). While many experts have pessimistic future predictions, my own estimates (due to exponential rate of change) are that by 2030 or so, petroleum products would become almost outdated.
There is a saying in Hindi – “jab gidar ki maut aati hai, vo shahar ki taraf bhagta hai”. This literally means “jackal invites his death by running towards a city”. It is something like voluntarily walking into a trouble. As someone (unknown) has said, “the trouble with trouble is it starts out as fun”. Katie McGarry has said this in one of her novels (“Take Me On”):
“I don't go looking for trouble. Trouble usually finds me.”
Well, all these proverbs apply to Saudi Arabia and other oil producing countries. In 2016, the oil prices had fallen to $30 per barrel. This month, in May 2018, the old prices went above $80 due to price manipulations by the oil producing countries – the oil mafia.
The oil is destined to die its unnatural death in next 15-20 years. Courtesy, renewables such as solar power. However, by artificially increasing the oil prices in such a drastic manner, the oil producing countries are going to accelerate the process of putting oil into oblivion, faster than expected. Due to high oil prices, there is more incentive now to invest more money in research and technology to fast forward the introduction of highly efficient and cheaper solar power, electric cars, batteries to store powers, etc.
In the long term, increasing oil prices are going to be a blessing in disguise. Environment will get rid of the polluting oil products. The world will get rid of terrorism (it will at least reduce), as a lot of terrorism is produced courtesy oil money. Countries such as Saudi Arabia, which still live in the 7th century, will become much less relevant. The recent changes being introduced by Saudi Arabia Prince are just a precursor to the impending future.
There are media reports that Saudi Arabia has decided to put a cap of $80 per barrel on oil, due to pressure from Donald Trump, and oil prices have already started stabilising.
[3]So, the chances of petrol prices increasing further are comparatively less.
In view of these reasons, we should not subsidize petrol and other petroleum products. It is better to pay more taxes on petrol than on other products. It will help the environment and world peace. It is not that I am opposing subsidies on petrol today. I have been opposing petrol subsidies for long. For example, this is what I wrote in the year 2009, in my book [
Law of Bail, Bonds, Arrest and Custody (2009 Edition), appx. 1625 pages, published by
LexisNexis (ISBN: 978-81-8038-440-0)]:
“The Government can spare a whopping amount of about Rs. 2,45,000 crore (more than US$ 58.0 billion) on oil subsidies every year, including explicit and implicit subsidies to the consumers, even if we forget substantial amounts spent on other subsidies, such as fertiliser subsidy, food subsidy, etc., or on other avoidable expenditures; but the Government is not able to find a meagre amount of Rs. 1426 crore only (only about US$ 0.3 billion) per year which is what is required to approximately double the strength of judiciary in India!”
So, in my humble opinion, we should face the higher petrol prices for a long term better future for the humanity. In any case, if the Government reduces taxes on petrol, it will increase some other tax.
Comments
Post a Comment