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We hiked oil price to save the economy
June, 05th 2008

Opposition parties are playing games. If they really care for the people, then the Bharatiya Janata Party should ask the States where they are ruling to reduce VAT (value-added tax) on petrol, diesel, kerosene and LPG. It is possible to protect people and nullify the hike in price of petrol and diesel which is done to protect the oil companies of India," said Minister of State for Petroleum and Natural Gas Dinsha J Patel in an exclusive interview with

A mild-mannered Patel, popular by his first name Dinsha, emphasized, "If we do not keep Indian state-owned oil companies afloat, the economy will break down and hurt the country. We want to save the country by saving our economy. Let us not play party politics. Let us save the country."

He said in Gujarat, VAT on diesel is 29.13 per cent and on petrol it is 29.88 per cent. Why can't they remove just 7 per cent and help poor people? If they decrease it by some 7 per cent, then consumers will gain at lot. VAT on diesel is 20.62 per cent and on petrol is 27.66 per cent in West Bengal; in Andhra Pradesh, VAT is 33 per cent on petrol; and in Punjab, VAT is around 30 per cent on petrol. The West Bengal government has kept 4 per cent tax on kerosene and 4 per cent on LPG gas bottles. Please remove it (the West Bengal government has cut taxes on fuel since then)! The States should also decrease taxes a little to compensate poor people.

"People who are opposing the hike should challenge the State governments to reduce their VAT on diesel and petrol a little bit. If they do that, the economy will not have any ill impact of the hike. The State governments do not want to decrease their VAT at all!"

    * Petrol up Rs 5, diesel up Rs 3 a litre; LPG up Rs 50
    * Inflation, the silent killer: Complete Coverage

He said because of the hike in petrol and diesel prices, State governments will earn more as VAT collection will automatically increase (as it will be levied on a higher price of fuel). He said that if the State governments let go of this additional revenue, consumers will benefit. He said that of the Rs 5 (the amount by which the price of petrol was hiked), State governments will get Rs 1.50 per litre. That could go back to the consumer if the State governments so wish.

He said that the government has increased the price of petrol by only Rs 5 a litre, against an actual loss of Rs 21.43 per litre. Similarly, the loss on per litre of diesel is Rs 31.58, but the government has increased the price by only Rs 3."

Asked about the protest plans of the Left parties and the BJP, Dinsha countered: "When the BJP was in power, they increased the price of petroleum products 17 times. An LPG (cooking gas) cylinder which cost Rs 145 when they took over, was selling at Rs 295 at the end of their rule. The price of kerosene, which was available at Rs 2.45 per litre, was hiked to Rs. 9.05 during the BJP rule. The BJP has no right to protest now. They didn't protest against their government then. Let us not drag the issue in politics. All of us should save the economy. We were forced to hike the price to save the country's economy."

When asked what the government told the Left parties and other UPA leaders about the price hike, Dinsha said: "We told them that Indian oil [Get Quote] companies have lost more than Rs 2 lakh crore (Rs 2 trillion). These oil companies will soon not be in a position to buy any oil because they will not have any money. The Indian economy will come to a standstill. India needs to import 70 per cent of its oil requirement. How will oil companies buy oil without money? We would be in deep trouble if the oil companies were not to survive."

The Left parties had suggested that private players in the oil sector should be asked to pay a windfall profits tax on the gains they make on refining and exporting, but Dinsha said: "When the country is globalizing, you can't disallow private refineries to function and operate overnight."

He said that it is a baseless allegation to say that private players like Reliance [Get Quote] or Essar, have made huge profits.

When reminded that the common man will feel the heat of the hike of Rs 50 on cooking gas and Rs 3 hike on diesel, he said, "I agree. If you look at it from the common man's viewpoint, you will feel that the hike is steep. But look at the bigger picture. The situation in the world has changed so much that we were compelled to take note of it. We had a fixed price when crude oil was at $60 a barrel, but today it is at over $130 per barrel. If we had not increased the price, state-owned oil companies would not have survived and eventually our economy would have collapsed."

"In just two or three months, oil companies would not have been in a position to purchase any oil. We needed to think over it and act on it," he said.

When asked again about the burden on the poor people due to the hike, Dinsha, a Gandhian, said: "In India, petrol constitutes 25 per cent of the total fuel imported, while diesel makes up for the rest of the 75 per cent. When the price of diesel rises, it affects an average farmer too. Normally, petrol is consumed by well-to-do people. We have taken care not to hike the price of diesel by too much."

On the hike in price of cooking gas, he defended the government's action by quoting the actual figures of current subsidy on it. He said, "We have increased the price of LPG by Rs 50 (per cylinder), but we were giving a subsidy of Rs 345 per cylinder. This means that that each cylinder of cooking gas, which costs the government Rs 645, was made available to you at about Rs 300. Now it will cost you Rs 350. A cylinder of cooking gas lasts for about 25 days, so we have increased the price of LPG by less than Rs 2 per day. We have taken into account the plight of ordinary people. And we have not increased the price of kerosene by even a paisa, keeping in mind the poor people who use it."

He said that the subsidy on every litre of diesel is Rs 25 and on petrol around Rs 15-17.

He claimed that, "India gives the cheapest kerosene in the world to its poor people because it is heavily subsidized."

When asked why wasn't the increase in fuel prices imposed in phases, he said: "We needed to talk to all the allied parties. Also, we thought that the price (of crude) won't increase so much, so fast. But international crude oil prices kept rising. The last time after we increased fuel prices and global prices dropped, we had revised the price of fuel. But, in last few days, crude oil prices have been rising so fast that in no time they went from $90 per barrel to $130 per barrel."

And what could be the political implications on his party, he said, "One should not think of personal gains or the party's gains on this issue. I believe that instead of breaking the nerve of the country, let the party or individuals suffer."

"Political parties are highlighting the hike in oil price, but they are not talking about the farmers who are earning big money in wheat, tobacco, cotton, corn, cereals and even vegetables due to our government's policy. Except in potatoes, farmers have earned in all the other produce."

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