Is Modi's bad luck with oil burning a hole in people's pockets? Yes, if you go by what he said
Narendra Modi once presented himself as a lucky sign for the country. Luck, it seems, has deserted him today. With state-run oil marketers hiking petrol and diesel prices for the ninth day in a row, fuel, which was lucky for him for nearly three years, has become a precious commodity for common people.
In less than a year of Modi becoming the prime minister in May 2014, the price of the Indian basket of crude oil crashed from $113 per barrel to $50 by January. That was a bonanza for a government struggling to manage fiscal deficit and planning large social-sector spends. When prices came down, opponents attributed it to Modi's luck and not his performance.
At an election rally in Delhi in February 2015, Modi responded to his opponents, “Ok, let’s accept that I am lucky but you have saved money. If Modi’s luck is benefiting the people, what can be more fortunate? If due to my good luck, prices of petrol and diesel come down and common man saves more, then what is the need to bring someone who is unlucky?”
Modi's run of luck went on, and the oil prices tumbled to $29 by January 2016. After a three-year run, his luck is slipping on oil. The global crude oil prices have hit $80 a barrel and are predicted to cross $100. Price of petrol has risen to Rs 76.87 a litre in Delhi and Rs 84.70 in Mumbai while Diesel is selling at Rs 68.08 in Delhi and Rs 72.48 in Mumbai.
However, the oil prices in India are not entirely a matter of Modi's luck. Though steep rise in international price of crude oil is beyond his government's control, it can cut excise duties to soften prices. Taxes account for half of the price of petrol and diesel. While the government raked in a lot of money in taxes when crude oil prices remained low for initial few years, it can afford to get less in taxes now when international prices are skyrocketing.
Most fuel taxes are as percentage of price which means government’s tax earning goes up as price increases. The central government raised excise duty nine times between November 2014 and January 2016 while it cut the tax just once in October last year. Indeed, oil minister Dharmendra Pradhan has indicated that there is scope for relief.
According to Vikas Halan, senior vice president, of Moody's Investors Service, state-owned oil producers ONGC and Oil India can be asked to share the fuel subsidy burden and they very well can afford it. "The net impact of the subsidy sharing will be manageable for ONGC and OIL, even if the two companies are required to bear the entire shortfall between budgeted and actual amounts for the fiscal year ending March 2019," he said. ONGC and OIL have not contributed to fuel subsidies since June 2015, but have in previous years paid for over 40 per cent of the country's annual subsidy bill.