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Of snake oil and oil profits

Of snake oil and oil profits
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First Published: Tue, Jul 08 2008. 10 51 PM IST

Illustration by Jayachandran / Mint
Illustration by Jayachandran / Mint
Updated: Tue, Jul 08 2008. 10 51 PM IST
In demanding a special tax on private oil companies’ profits that are soaring in the wake of high oil prices, the Left Front and the Samajwadi Party are not alone. The notion of a “Robin Hood tax” to help consumers cope with record oil price levels has of late been catching on in the West as well. But even as the jury is still out in the latter, there is a difference between these two situations. The Indian case translates into asking private enterprise to pay for the government’s sloppy management of subsidies—and support consumers who can afford to pay market prices for LPG—as well as controls on auto fuel prices that discourage the curbing of wasteful consumption.
Illustration by Jayachandran / Mint
What is the situation in other countries?
In June, US presidential candidate Barack Obama’s suggestion to make “big oil” companies such as Exxon pay a tax on their windfall profits, and use the money to help families pay for their skyrocketing energy bills, was shot down by the US Senate. In June again, the European Commission stated it was not opposed to Italy’s proposal to tax oil firms and redistribute the revenues to struggling households. Its chief, Jose Manuel Barroso, also added a rider: “...while petrol companies derive exceptional profits from prices...they must make exceptional (sorely needed) investments for...modernizing infrastructure, searching for new oil fields.”
While the jury is still out on how the EU will tackle rising household fuel bills, that comment forms the crux of the issue globally. It is being argued that as big oil is not investing much in either fresh exploration of oil or alternative fuels, the threat of taxing some of its excessive profits for redistribution may at least push them to put that money where it is critically needed. (The vetoed US Bill did suggest such a condition.)
The difference with EU is that India is not only unable to do much about curbing consumption through market pricing of petrol and diesel, but it also has failed to direct the subsidization of LPG and kerosene to the genuinely needy. Yet, as the dominant shareholder of its publicly listed public sector oil marketing companies, its government perversely forces them to provide those subsidies.
Since the political demand to impose a tax on the profits of private oil companies is to help ease that burden of subsidies, it means forcing them to pay for those misdirected policies, too. Instead, the government must first begin supporting the needy directly, or indirectly through the marketing companies, and stop bleeding the latter.
Should private firms pay for misdirected subsidies? Write to us at views@livemint.com
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First Published: Tue, Jul 08 2008. 10 51 PM IST