There has been much hoots and shouts going around the nation regarding the prices of the petrol and diesel and how the centre has been constantly escalating the prices of the fuel and garnering revenue for the nation itself. Now, unlike certain influencers and self- acclaimed economists with zero knowledge of public economics who have judged the entire situation and shifted the entire blame on the government, I’ll not walk the road of answering and giving my opinions to highlight the nefarious/malafide intentions (if any) of the Government of India. Rather, I’ll use this editorial as an instrument to highlight the other intentions of the Government of India to bring forth a surge in the fuel prices and how will the scheme benefit both the state governments and the central government.
Though there could be various criterion for bifurcating the other though process that the government has, I have bifurcated into three major factors.
Primarily, the usage of EV (Electric/Electronic Vehicles). Not just India, when we look at the European nations, we see EVs on the road like an ordinary thing. And from the last few years, the demand and the popularity of the EVs have seen a sharp growth as an alternative for the petrol/diesel driven vehicles which are expensive in certain areas (India, as of now) and the depletion of fossil fuels coupled with destruction to the environment.
When we talk of EVs in India, the concept and name isn’t a novel one. Rather, the correct term to use would be nascent. It was in 2010 when for the first time this concept was included under the Alternate fuel for Surface Transportation Program (2010-2012) by the Ministry of New and Renewable Energy (MNRE). For the initial phases, the scheme had a positive effect and the sale of EVs shot up. However, the sale took a dip and remained stagnant because this scheme failed to cover any major vehicle or component which would actually give benefit to the EV industry. Following this came the National Electric Mobility Mission Plan 2020 (NEMMP) in the year 2013 which aimed at creation of healthy and strong infrastructure for the EV sector in the country. Though the scheme didn’t work out that well, but it gave away the Faster Adoption and Manufacturing of Electronic Vehicles in India (FAME) Scheme.
After winning the 2014 election, the National Democratic Alliance (NDA) with its cahoots brought in the FAME India Scheme on 1st April 2015 under the Department of Heavy Industry. The prime objective of this scheme was creation of demand for EVs, research and development of the sector and build a strong infrastructure by the way of subsidies. Following this, on 1st April 2019, FAME-II Scheme was launched which was the second phase of FAME India scheme. Under this scheme, vehicles powered by lithium-ion batteries and advanced power sources could avail the government benefits. As part of the EV charging infrastructure plan, it planned to install approximately 2,700 charging stations in several Tier 1 cities. The plan is to ensure the availability of at least one filling station on a 3km x 3km grid. Furthermore, the budget of 2020 was far more favorable for the EV sector than the budget of 2021 where the main components required for the manufacture of the EVs witnessed an increase in GST.
Secondly, the UPA- era Oil Bonds. Before we understand on why the UPA- era Oil bonds have proved to be a menace, I would walk my readers through the basics of oil bonds and why are they issued. The Oil bonds are a type of special securities which is issued by the government to the oil marketing companies instead of cash subsidy. These types of bonds enjoy a long term timeframe of 15-20 years with the interest constantly being paid to the oil companies. Now these bonds are issued by the government as a tool of compensation when they are at the edge of violating the fiscal deficit target due to certain unforeseen circumstances which has negatively impacted the revenue sector, which in turn has led to an increase in the government expenditure.
Now the UPA government between 2005 and 2010 issued oil bonds to these oil companies amounting to Rs. 1.4 lakh crore. The reason was a rather simple one. During the same time period, the oil marketing companies faced a huge financial burden upon them as the selling price of petrol and diesel was lower than the international market price. Hence, in order to protect the interest of these oil companies, the government issued the bonds with an assurance of interest payments and redemption at maturity. Therefore, the petrol prices were kept low at that time than the international market price in order to keep it affordable.
Now it is the time (2021 to 2027) where the redemption of these bonds is due. Talking of the year 2021-22 (current fiscal year) the government has a liability looming over its head to pay Rs. 20,000 crore in the form of bond repayment and interest on the outstanding oil bonds. Hence, making the total debt of Rs. 1.4 lakh crore for the next six years.
Thirdly, public economics. I would keep this section brief, as explaining the entire concept of public economics with respect to a commodity require a detailed analysis, comparative studies and the support of figures. Therefore, I would just confine myself by the clever yet painful approach employed by the government in order to meet its expenditure and the debt that its previous government has left for it.
When we were kids, the sole answer for removing or reducing poverty and unemployment was to direct the government to print more and more money. Such a naïve and childish behaviour. But since we have gained our conscious in the sector of public economics, we now know that the government can’t print more and more money as and when they wish because the printing of money should always match the total production of goods and services in the country, otherwise inflation and even hyperinflation will ruin the economy to tatters. Even if the government wishes to print new currency, there are certain factors which can’t be overlooked.
Now a sane public economics policy says to cut short the liabilities of country, the revenue has to be garnered. The government, instead of raising money from other sources, could go to the lender of last resort which would lend the money and adjust the repo rate and the reverse rate in order to adjust the inflation rate. Now the prime reason for the government to raise money from domestic sources is to keep the country’s money in the country itself. The revenue garnered from such actions will be given to the sovereign first as they possess the first right over it. Since we are talking about the public economics, there are unnecessary rants and allegations about the state enjoying 1/3rd of the VAT on petrol and 2/3rd of the VAT to be given to the centre. However, what the people forget that out of the 2/3rd of the VAT amount given to the centre, they have to give the amount from the amount being paid to the centre.
In conclusion, I hope that the above mentioned reasons and the criterion mentioned that my readers have walked with me have now formed and expanded their horizon of the issue of the increase in the fuel price in the country. Hence, I leave my readers with an opinion of mine. In my opinion, it is essential for us to not make the central government a scapegoat of the follies and fallacies of either the previous government or the half- known truth of the reasoning behind the issue at hand. After all it is said, “Half knowledge is always dangerous!”