Myth of Petroleum Under Recoveries in India

For almost nearly 5-6 years, prices of petroleum products have been sky rocketing. International prices of  crude oil has increased from avg of 79.25 $/bbl in 2007-08 to avg  of 107.97 $/bbl in 2012-13. Accordingly prices of petroleum products have been increasing in India.

Accordingly under recoveries of Oil Marketing Companies have increased from Rs 77,123 crores in 2007-08 to Rs 161,029 crores in 2012-13.  

But what is missing from this under recovery debate is that these OMCs are just one part of the supply chain of petroleum products.

At present the three OMCs -  IOCL, BPCL and HPCL handle almost all of the distribution of petroleum products in the country. Even if you take suggestion of CAG into account, these companies are alive only due to govt subsidies  and support of upstream players.

ONGC is the govt arm in exploration and production of petroleum products. When petroleum prices increases, its profit increases unlike OMCs. Its profit after taxes have  increased from around Rs 18000 crores in 2007-08 to Rs 24,000 crores in 2012-13.

But the biggest beneficiary from petroleum product price increase is the govt itself. Total excise and custom duties on petroleum products has increased from around Rs 78000 crores in 2007-08 to around Rs 99,000 crores in 2012-13. Further total sales tax payments has increased from Rs 59,890 crores in 2007-08 to Rs 1,11,355 crores in 2012-13.

So total sum of taxes collected by govt and upstream profits was around  Rs 235,00 crores in 2012-13 compared to under recovery of OMCs of 161,029 crores. Hence govt made a cool profit of around Rs 74 thousand crores on selling petroleum products in 2012-13.

And this was supposed to be the worst year for OMCs in term of under recoveries. In 2013-14, due to frequent price revisions under recoveries of OMCs declined to Rs 139,859 crores.

So effectively govt collects high taxes on petroleum products then sells them at a loss then uses the taxes to subsidize the loss, finally earning a cool profit. Govt might have its difficulties in reducing the tax rates on petroleum products, but then the figure of under recovery should not be used as a reason to reduce expenditure on other important social welfare schemes.


Source: http://ppac.org.in/ 

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