March 26, 2012

india should de-control diesel and lpg prices

Recently, I contributed an editorial for the newspaper I presently work for. It was on the pressing need of the Indian government to de-control the prices of diesel and domestic LPG. 

Here is what I wrote in the editorial I submitted to the newspaper:

Iron is hot. Strike now.

Wasting time in indecision on de-control of regulated fuel prices is a luxury the country can absolutely not afford to indulge in at the current time. It is not very often that you get a situation where on all fronts, economic, geo-political and national political, the mix of pressure points and lack of it, is just right for the government to de-control all fuel prices.

On the economic front, there are some grave figures of losses to the national ex-chequer that are just screaming for not just attention but also action. The public sector oil marketing companies (OMCs) have suffered from under-recoveries in regulated fuels to the tune of Rs 97,313 crore in the first three quarters of the current financial year.

Diesel under-recoveries were the highest at Rs 56,732 crore, followed by about Rs 20,000 crore each for domestic liquefied petroleum gas (LPG) and kerosene sold through the government's public distribution system. Under-recoveries, caused as they are by the difference between the higher landing cost of the imported fuel paid by OMCs and the lower government-controlled price that the OMCs realise from the dealers. In terms of per unit prices, the under-recoveries, as of mid-March prices, amounted to Rs 13.10 per litre for diesel, Rs 28.67 per litre for kerosene and Rs 439.50 per cyclinder for LPG.

The higher the international prices of crude oil and natural gas go the higher will be the under-recoveries which is very near the point where it will be like the last straw that broke the laden camel's back. The poor fiscal health of the economy makes it much worse for continuing with subsidised fuel prices.

The government tinkered with custom duties by reducing it earlier in the current financial year and this has caused a direct loss of Rs 49,000 crore for the whole year. The finance minister was the least ambigous about the harmful effect that a combination of lower tax receipts and higher expenditure (around 60 per cent of under-recoveries are paid for in cash by the government and the remaining borne by the upstream oil companies such as ONGC and GAIL) was having on the fiscal deficit.

Even the price of de-controlled petrol has been indirectly kept under check by the government for more than a year now. At current prices, the OMCs are losing Rs 4.12 per litre on petrol which is the difference between price of about Rs 42.54 per litre paid by OMCs to refineries on landed cost basis and the price of Rs 38.42 per litre they are charging to petrol dealers. Excise duties and value added tax are factored in the final retail sale price which is Rs 65.64 in Delhi.
With key state elections of Uttar Pradesh, Punjab, Uttaranchal Pradesh and Goa over last month there remains not much of political brownie points to be scored in keeping fuel prices at low levels. Congress, the largest party in the ruling coalition, has lost heavily in these state elections despite all attempts to dangle lower fuel prices as a carrot to the electorate.

There are two full years remaining before the next general elections and the ruling establishment should worry much less about political future than it does about the future of the country's economy. Internationally, the geo-political situation is on fire with crude oil imports from Iran, the hotspot, not going to be without additional costs attached to it.

In the current financial year, India has met 12 per cent of its crude oil demand from Iran. We import more from Saudi Arabia. The changes that US and European Union sanctions on dealings with Iran will entail on Indian crude oil import is difficult to ascertain precisely but keeping domestic fuel pries is certainly going to make the oil import management far more difficult.

The iron is hot and the government should strike immediately. A petrol price hike alone will not help.

March 22, 2012

life in journalism: when government stiffles coverage

Journalists often face major hurdles in reporting events and happenings and these hurdles are either put by government entities or private entities.

In Tamil Nadu, right now, journalists are facing stiffling restrictions on their attempts to cover the anti-nuclear protests in Idinthakarai, a fishing village, near which a big nuclear plant has been set up.

(the image to the right has been taken from

Here are more details from a report I got in my mailbox:

Reporters Without Borders condemns police obstruction of national print and broadcast media today in Idinthakarai, a fishing village in the southern state of Tamil Nadu, where the authorities are trying to remove entrenched anti-nuclear protesters from their camp beside the Koodankulam nuclear power station.

“It is always disturbing to see the authorities establish a perimeter and deny access to the media, even temporarily, for reasons other than their security,” Reporters Without Borders said. “Installing police barricades and ordering the police not to let the media through is unacceptable. We urge the Tamil Nadu government to modify the orders and allow journalists full access.

“The authorities must not try to use security as pretext for restricting media coverage of a peaceful anti-nuclear demonstration that contributes to the debate on a subject of public interest. A continuing media presence will also help to dispel any concern about the way the police could be treating the demonstrators.”

Police prevented journalists with NDTV, Times Now, Times of India and other national media from entering the fishing village at 7 a.m. today.

After initially saying they had orders from their high command to deny access to all journalists, the police manning the barricades allowed print and video reporters through. But, according to the Madras Press Club, they continued to deny access to TV mobile broadcasting trucks on the grounds that live reports would just exacerbate the situation.

However, when reached by telephone by reporters outside the village, the head of the Tamil Nadu police denied giving any such orders and, according to the latest information obtained by Reporters Without Borders, TV trucks were finally allowed into the village.
The Tamil Nadu government launched its operation against the Koodankulam protesters at the start of the week. Led by the People’s Movement against Nuclear Energy (PMANE), the protesters have been camped for more five months beside the power station, which is supposed to start operating soon.

Demonstrators have been denied access to the protest site, including by sea, since 19 March. They say that journalists have also been denied access since 19 March and that some journalists have been forced to leave the protest site.

Freedom of information has deteriorated significantly of late in India, which was ranked 131st out of 179 countries in the 2011-2012 Reporters Without Borders press freedom index.

March 19, 2012

life in financial markets: tax revenues foregone

Government's tax incentives valued 12 per cent higher this year

Special tax rates, exemptions, deductions, rebates, deferrals and credits is estimated to cost the central government a total of Rs 5,81,872 crore in the current financial year (FY12), 12.5 per cent more than it did in the previous year (FY11). This is revealed in a FC R analysis of the statement of revenue foregone under the central tax system which was released as a part of the budget documents on Friday. The analysis encompasses the tax incentives given in four major revenue heads, personal income tax, corporate income tax, excise duties and customs duties.

The government's statement of revenue foregone, while putting a value to various tax incentives, states this is done "assuming that the underlying tax base would not be affected by removal of such measures. As the behaviour of economic agents, overall economic activity... could change along with the elimination of the specific tax preference, the revenue implications could be different to that extent." 

As per the current year estimates, revenue foregone due to customs duty concessions, including revenue foregone from export promotion schemes other than drawback, has risen the highest, on a year-on-year basis, at 20 per cent to Rs 2,76,093 crore in FY12 from Rs 2,30,131 crore in FY11. Essentially, the revenue foregone in customs duties represents the difference between duty that would have been payable at tariff rates fixed under the Customs Tariff Act, 1975 but for the exemptions given by the central government (using its powers under Customs Act, 1962) and the actual duty paid after the exemptions.

In customs duties, the two major commodity groups, crude oil and mineral oils, and diamond and gold, accounted for the largest portion of revenue foregone. In June 2011, effective basic customs duty on crude petroleum oil was reduced from 5 per cent to nil, that on petrol and diesel was slashed to 2.5 per cent each from 7.5 per cent each. As a result, the customs duty revenue foregone from crude oil is estimated to be Rs 58,190 crore in FY12, 41 per cent more than Rs 41,200 crore in FY11. Customs duty foregone on diamond and gold, is seen to be at Rs 57,073 crore in FY12, 16 per cent higher than it was in previous year.

Revenue foregone due to personal income tax concessions, a large part of which is taken up through deductions allowed under Section 80C of the Income Tax Act, is estimated to be at Rs 42,320 crore in current year, 15 per cent higher than in previous year. Interestingly, tax concessions given to corporate tax payers is estimated to be 11 per cent lower, at Rs 51,292 core, than last year's Rs 57,912 crore.

Cost of tax incentives

The government has put a value to various tax concessions. Here's the latest.

Revenue foregone during:

2011-12* 2010-11 YoY change
Corporate income tax 51292 57912 -11.43
Personal income tax 42320 36826 14.92
Excise 212167 192227 10.37
Customs** 276093 230131 19.97
* estimates

** includes revenue foregone from export promotion schemes other than drawback
Figures in Rs crore

March 16, 2012

life in financial markets: india's tax revenues hit by slack in corporate tax, excise and customs

The current year is turning out be one of the worst growth years in tax revenues for the government of India. The pace at which revenues received by the government in the form of taxes, direct and indirect, have been growing in the current financial year (FY12), is lower than recent years. This is indicated from an analysis of the trend in collections of two major direct tax heads, corporation tax and income tax, and three major indirect tax heads, central excise duties, customs and service tax.

This has caused only 69 per cent of net tax revenues (after assignment to states) estimated at Rs 6,64,457 crore in budget 2011-12 to be reached in the first 10 months of FY12. It falls much behind the 80 per cent of budget estimate of Budget 2010-11.

The analysis of individual tax heads reveals individuals paying income tax and all those paying service tax on services have helped the government fill up its coffers much more than companies which have been faced with lower profit growth resulting into a sluggish growth in paid corporate taxes. Un-exciting rate of growth in sales, also the reason behind sluggish corporate profits, has resulted in only a small growth in excise duties. Customs collection growth too has been affected a little, partly due to imports getting costlier on account of rising global commodity prices.

Low growth in tax revenues
Current year has seen most tax revenues struggle to grow at the same pace as previous years
             YoY Growth rates (%)
Tax revenuesFY12*          (Rs crore)  FY12**  FY11   FY10   FY09     FY08
Corporation tax2287505.0421.1114.6810.6233.68
Income tax11435021.1812.6624.773.3136.69
Central excise duties1299266.2229.59-2.11-12.004.94
Service tax8256236.9018.79-4.1318.7936.45
* Apr-Jan for corporation tax & income tax & Apr-Feb for excise, customs & service tax
** change from corresponding period of FY11

In the first 10 months of FY12, upto January, corporate tax yielded a gross revenue of Rs 2,28,750 crore, only five per cent more than the collection figure in the corresponding period of FY11. This is the first time in five years the growth rate slipped to single digit. From FY08 to FY11, the annual growth rate in corporate tax was 34 per cent, 11 per cent, 15 per cent and 21 per cent.

Revenue collection from personal income tax, however, has been robust in the current year upto January, growing by 21 per cent to Rs 1,14,350 crore. From FY08 to FY11, the annual growth rates in income tax were 37 per cent, three per cent, 25 per cent and 13 per cent.

Among indirect taxes, for which collection figures upto February 2012 were available, central excise duties raked in Rs 1,29,926 crore, in the April 2011 to February 2012 period, six per cent more than that in the corresponding 11-month period in FY11. While this is sharply down from the 30 per cent annual growth in excise collections in FY11, it is better than the negative growth rates seen in FY10 and FY09 and a smaller positive growth of five per cent in FY08.

Customs collection showed a 12 per cent growth in current FY as against growth rates of 58 per cent in FY11, negative 17 per cent in FY10, negative four per cent in FY09 and 21 per cent in FY08. Service tax growth in the current FY has been the highest in the last five years. Service tax collection was Rs 82,562 crore in the first 11 months of FY12, 37 per cent more than that in corresponding period of FY11.