Neither the overall annual financial performance of the domestic oil firms, nor the movement of daily, monthly and yearly international crude prices justify the withdrawal of the so-called oil subsidy and frequent increase in petroleum products prices. The withdrawal of oil subsidy is primarily to subsidise the oil-rich to make fatter profit.

Let us take the performance of the domestic oil companies, first. Reliance Industries (RIL), the country’s largest private sector oil company, made a net profit – that is the profit after interest, depreciation, excise and customs duties, other levies, corporate tax, etc – of over Rs. 20,000 crore in 2010-11. RIL’s net profit showed a big jump from the 2009-10 level of Rs. 15,898 crore. The public sector Oil and Natural Gas Corporation (ONGC) too made a net profit of over Rs. 20,000 crore in 2010-11. ONGC has declared a 90 dividend for the year. The government, the largest shareholder, is the biggest beneficiary. The dividend amount paid to the exchequer is in addition to taxes, duties, royalty and cess. RIL paid 80 per cent dividend. The biggest beneficiary is Mukesh Ambani and family, the largest shareholders of the company.

The combined net profit of the country’s two oil giants, last year, was well over Rs. 40,000 crore. Both are expecting higher profits, this year. Essar Oil, a private sector oil company, expects its net profit for the current financial year to be close to Rs. 2,000 crore on the basis of results of January-June, 2011. The industry is booming, especially after the oil price decontrol by the United Progressive Alliance government. The price heat has been fuelling inflation. The poor and the common man are the worst suffer.

Three other oil majors – Indian Oil Corporation (IOC), Hindustan Petroleum (HP) and Bharat Petroleum (BPCL) – earned a combined net profit of around Rs. 11, 000 crore in 2010-11. Of all the three public sector oil refining and distribution undertakings, IOC’s profit was the highest at Rs. 7,445 crore. IOC recorded the biggest ever turnover, last year, at Rs. 3,28,744 crore. The company declared a 95 per cent dividend for the year. The pay-out is Rs. 2,307 crore. IOC alone paid Rs. 77,662 crore to the exchequer by way of taxes and levies during the year. IOC, a Fortune 500 company, had never skipped dividend to its shareholders in the last 44 years.

If these published figures are to be believed, why does the government continuously cry wolf about the losses of the oil companies? Even to say that their marketing arms are making losses on account of partial price controls by the government makes no real sense. These losses are only notional. There is no need to separate an oil company’s two operational functions – production and marketing. Not every division of a business corporation operates as a profit centre. Ultimately, what matters is the corporate bottom line. The fact of the matter is that most Indian oil companies are reaping good profits. The petro products prices in India are among the highest. The high prices are benefitting both the private and public sector oil oligopolies mercilessly at the cost of the poor and the common man.

This leads to the second myth which claims that high oil prices in India are linked with international oil prices. If it were true oil prices in India today should have been at least 40 per cent cheaper than the prices prevailed around June, 2008, when they reached their peak at around US$ 140 per barrel in the international market. In 2009, when the oil prices fell to $ 50 a barrel for a while and averaged at $ 62 per barrel at the end of the year, did the Indian government pass on the benefit to its consumers by pruning the prices of petro products?

As of September 30, 2011, the international spot price of crude oil went up to $ 80 per barrel. The government is considering another price hike for petrol, diesel and cooking gas. The fact is that average international crude prices in 2009, 2010 and 2011 were all well below the average crude oil spot price of $ 100 per barrel in 2008. Logically, uptil now there is no case for a fresh oil price hike after 2008. In fact, the prices should have been brought down as they were done in most other economies in the world.

Spot prices of crude oil change daily in the same way as stock and other commodity prices change – categorized by intra-day high, low and closing price. Therefore, it is illogical and also unacceptable if the government or the industry price regulator takes into account only the highest price quoted in the global market during a month and ignores the low and the closing prices thereafter while determining the domestic products prices.

Indian oil companies, which annually import over 160 million tons of crude oil, are not big buyers in the spot market. A substantial part of the import is booked in advance with regular suppliers on a lower average price basis. Almost 70 per cent of India’s crude oil is traditionally imported from the Middle-East and North Africa (MENA) at negotiated prices, which are often well below the more speculative spot prices. Interestingly, there has not been much change in the average spot price of crude oil in the last five years, which hovered around $ 79 per barrel despite the high 2008 average of $100. The current spot crude price is ranging between $80 and $90 per barrel. But, the government does not share these price statistics with the domestic consumers when it cries foul of a sudden short-time spurt in crude oil prices and use them as an alibi to raise domestic petro-products prices.

Finally, about subsidy. The word subsidy is an invention of capitalist economists to show certain government expenditure on the underprivileged and the common man in a poor light. In a socially conscious state, the government taxes and borrowings are meant to be reinvested back to the society for the greatest good of the largest number. The so-called subsidy, if meant to benefit the largest number or the bottom of an inequitably divided society, is nothing but a good government reinvestment in a good social cause. Such reinvestments in education, healthcare, social infrastructure and improvement in the quality of life of the underprivileged are to be seen as social expenditure and not termed as subsidies. They are much desirable than those other form of subsidies — cleverly called incentives by capitalist economists. They are doled out to the business community in multiple forms, including tax-savings, to make them richer.

It is rather unfairly hypocritical to describe a government fund well spent on the poor as subsidy and the same given away on the sly to the rich as incentive. When the public fund is doled out to commercial banks overburdened with sticky assets, the act is called recapitalization, once again a term invented by capitalist economists to cover the impact of bad loans on commercial banks. Most of the sticky bank assets are on account of unrecoverable loans given to business enterprises and to others out of greed or under political pressure. In the case of the pricing of petro products, which, in India, concerns the poor and the common man more than the rich, the government collects more from taxes and levies from the public than what it gives back to the society as the so-called price subsidy.

Few will disagree that taxing essential commodities such as foodgrains, fertilizer, petro-fuel and edible oil, which are constantly in short supply, is almost a criminal act. The government would do well by rather sharing the cost burden of these essential commodities so that they become affordable to the common man. While lakhs of crores of rupees are wasted in politically-motivated useless poverty alleviation programmes, cheap sale of government licences, and on personal securities of highly placed public servants, no eyebrows are raised. But, tax-cuts or exemption of duties and price support to essential commodities for the benefit of the poor and the common man are condemned as wrongful acts of subsidy by the government and the Planning Commission, a body of mostly over-aged socially-insensitive rightist intellectuals employed to foster political agendas of ruling parties.

Therefore, it is no wonder that such a plan body would suggest a drastic cut in government price support (subsidy) on bare essentials and fund allocation in creating job avenues for the poor and the unemployed by redefining the poor as those who live on a meager daily earning of less than seven cents (Rs.25-32) each, slashing down the number of those living below the poverty line (BPL) with a clear intention to reduce government expenditure on the underprivileged section of the society. There is no level playing field for the Indian poor vis-a’-vis their western counterpart. Such a luxury is strongly recommended only for the rich. (IPA Service)