Fuel prices in India were high not because of OPEC.

For years we have been puzzled by reports that the Congress government was subsidising petroleum products to help us poor consumers when petrol prices in the US, where there is no subsidy, were consistently lower than that in India. Turns out that the government was raking in Rs 3 trillion in taxes, which was divided equally between the center and the states. Hence, the earnings from high oil prices was much higher than the so called subsidy that the Congress was so kindly dishing out. There is great jubilation that the 45% fall in oil prices in the last few weeks will be a bonanza for India but apparently our GDP grew at an average of 8.7%, when oil prices were compounding at 20%, from 2004-2008 but fell to 5.5% in 1998-99 when prices fell by 43% to $12 a barrel. Also in 2002 growth was a mere 4% when oil price fell 17.4% to $23.2 a barrel. If the government is making more in taxes than it is paying out in subsidies stands to reason that the rich, who use more oil products, are paying more to the government. Why then are we constantly told that subsidies help the rich more than the poor? Even a working paper from the IMF last year said that subsidies on fuel in India amounted to 2% of the GDP but forgot to mention that taxes on fuel were 3% of GDP. Even today when international prices are down to $60 a barrel, a fall of 45%, pump price in India is down around 5%. Why? Partly because the government raised the excise duty on oil, which is a good idea, but partly because oil retailers, which are all government companies, have raised their margins acting as a cartel, which is not so good. Trouble is that even poor people need to travel so politicians seek to hide fuel taxes but happily levy very high taxes on jet fuel, the thinking being that only rich people fly so they should be made to pay. But the poor are also human and would rather fly than go by cattle class train but they are priced out of flying by the enormous taxes. The middle class find it cheaper to fly to Bangkok where a return ticket costs around Rs 20,000 than holiday in Kerala where a return ticket would cost Rs 25,000. Which is a waste of foreign exchange and the hospitality industry in Kerala loses customers. Not just fuel, taxes on cars constitute around 60% of its cost making it unaffordable for most people. Why are taxes so high? So that politicians can bribe voters to win elections, but here the money goes to the rich while the real poor go to moneylenders. Sadly, our politicians did not understand, or more probably deliberately ignored, the fact that if the country grows rich the people will grow with it. China understood and is now far out of sight. We can only hope that the present lot understand that taxes kill the economy.