Why Tamil Nadu Doesn’t Want To Take Any Initiative In Slashing Fuel Prices

by MR Subramani - Oct 30, 2018 06:42 PM +05:30 IST
Why Tamil Nadu Doesn’t Want To Take Any Initiative In Slashing Fuel PricesCrude oil prices have been volatile this year, posing problems aplenty for the Indian government and economy. (Hk Rajashekar/The India Today Group/Getty Images)
  • Tamil Nadu has been one state that has never made any attempt to ease the pressure of dearer petrol and diesel on the average person.

    This is because the blame for the fuel price hike is now with the centre—the Tamil Nadu government benefits from that. And then there are the social welfare schemes.

Crude oil prices have been volatile this year, posing problems aplenty for the Indian government and economy. One of the major reasons for this is the United States’ sanctions against Iran, which is allegedly developing its nuclear weapons. Though sanctions on the crude oil and petroleum products front will be implemented from 4 November, prices have spiked fearing short supply.

The other reason for the volatile behaviour was Saudi Arabian dissident journalist’s murder at its embassy in Turkey. The murder led to a hue and cry being raised in international forums and the United States (US) issuing a stern warning. However, the US, realising the key role of Saudi Arabia in keeping oil prices on a leash, has toned down its response. This has helped crude oil prices to cool over the last 10 days. A volatile geopolitical situation isn’t helping the situation either.

Prices of Brent crude, which at one time looked like topping $85 a barrel, have dropped to $76.78 currently, easing concerns of a global economic crisis. For India, the spike in crude oil prices came along with a drop in the rupee value. The rupee dropped to over 74 to the dollar, though the Indian currency has regained some of its losses to 73.55 currently. The rupee’s drop was related to the crude oil price hike since India needs dollar to buy the commodity, as nearly 80 per cent of its demand is met through imports.

The Narendra Modi government took various measures to keep the situation under control, including slashing duty. The centre also asked state governments to follow suit by lowering the value-added tax on petroleum products, which are out of the purview of the goods and service tax (GST). While states ruled by the Bharatiya Janata Party (BJP) governments have been the first ones to do it, there have been similar gestures from other states, too.

However, Tamil Nadu has been one state that has never made any attempt to ease the pressure of dearer petrol and diesel on the average person. The high prices drew various reactions, and the BJP had to single-handedly shoulder the burden of the criticism. The Tamil Nadu government has been indifferent on the issue, pointing fingers at the central government.

Given the fact that the mainstream media in Tamil Nadu has been biased against the Modi government, the All India Anna Dravida Munnetra Kazhagam (AIADMK) government in the state has refused to play ball with the centre. That left the consumer at the mercy of the centre and market forces. A couple of incidents took place in Tamil Nadu that even drew national attention. It was also a pointer of how the ecosystem in Tamil Nadu works.

First, at a wedding in the state’s Cuddalore district, a bridegroom received five litres of petrol as his wedding gift from his friends. The friends said with prices of petrol zooming, it was the best gift they could think of as it could soon turn into a precious commodity. A similar event took place there, where a couple received two litres of petrol each as their wedding gift.

Second, when Tamil Nadu BJP chief Tamilisai Soundararajan was speaking to the media in Chennai, an autorickshaw driver standing behind her asked her about higher fuel prices. The autorickshaw driver was roughed up, leading to a furore in the media. Later, Soundararajan went to the autorickshaw driver’s home along with those who roughed him up to express regret for the incident.

“Prices are coming down now. But when they were nearing Rs 90, we had to face the public ire,” says Santosh, an attendant at a fuel pump in Chennai’s Anna Nagar area. Some fuel pump attenders have reported of being abused by customers. Most of the fuel pump attenders in Chennai are from other states like Odisha, Jharkhand, and West Bengal. Santosh didn’t want to reveal his surname.

“I have now cut needless driving in my two-wheeler since I have to explain to my parents every time I go to them for money to fill petrol. So, if I used to ride my two-wheeler to a nearby shop earlier, I now walk the distance,” says S Anand, an engineering student in Anna Nagar.

The Tamil Nadu government has been unmoved by the consumers’ woes. State Fisheries Minister D Jayakumar said: “The reduction of the price of petrol or diesel is the discretion of the central government as they are the authority.” He said the value-added tax, which it imposes on petroleum products, is required for expenditure on development.

“We only levy VAT. Revenue from VAT is spent on the welfare of the downtrodden like adi-Dravidas, Scheduled Tribes, and Backward Communities. About Rs 77,000 crore or 70 per cent of the state’s revenue is being spent on these downtrodden people,” Jayakumar said, adding that but for VAT, Tamil Nadu has “to beg for money” from the centre.

But Opposition leader and Dravida Munnetra Kazhagam president M K Stalin doesn’t agree with Jayakumar. He told the Tamil Nadu Assembly when petrol prices touched Rs 80 that fuel price hike put a big burden on the average person and would have a cascading effect. Even Kerala had cut prices by Re 1 on 1 June, he said, adding that when it was in power, the DMK had cut sales tax in 2006, 2008, and 2011 to reduce the burden on the person on the street.

Stalin has a point in that Tamil Nadu imposes a 34 per cent VAT on petrol and 25 per cent on diesel. The VAT on petroleum products has helped the state mop up over Rs 12,500 in 2016-17 fiscal, according to the Ministry of Petroleum and Natural Gas.

State Deputy Chief Minister O Panneerselvam told the Assembly that the state government was not in a financial position to reduce VAT on petrol and diesel to bring down prices due to revenue deficit. In the budget for the current fiscal that Panneerselvam presented, fiscal deficit is estimated at Rs 44,481 crore against Rs 53,586 crore last fiscal. The state government is blaming the Seventh Pay Commission for the stress on its financial state, as its implementation entailed an outgo of Rs 14,719 crore a year.

Salaries and pensions make up 40 per cent of Tamil Nadu’s revenue expenditure, at Rs 77,533 crore. Subsidies for various schemes result in an expenditure of Rs 75,723 crore while payment on interests total Rs 29,624 crore.

One reason the state government points out for its revenue income dropping is the Supreme Court ban on liquor shops within 500 metres of state and national highways, to an estimated Rs 6,998 crore this fiscal. In 2017-18, revenue from liquor sales dropped to Rs 26,794 crore (Rs 6,009 crore excise revenue and Rs 20,784 crore VAT) from Rs 26,995 the previous fiscal.

The state government blamed the GST for creating uncertainty in the economy in the short-term, but estimated receipts from GST at Rs 86,859 crore. The share of central taxes to Tamil Nadu has been estimated higher by Rs 6,000 crore for 2018-19, but Tamil Nadu says the share has dropped by 0.9 percentage points each in general divisible and services pool.

“The real problem for Tamil Nadu in turning a blind eye to higher fuel costs is its so-called social welfare schemes. At one point of time, income from liquor sales helped meet the expenses, but now things have gone out of hand,” says a financial expert on the condition of anonymity.

In the 2016 Assembly election, the AIADMK had promised to close liquor shops in phases. First under the late Jayalalithaa and now under Edappadi K Palaniswami, the government has declared that at least 1,000 state-owned liquor shops will be closed, the expert says.

“The Supreme Court ruling initially resulted in many shops being shut. Then, there were protests to shut the liquor shops in places close to residential quarters and schools. All these have resulted in shops moving to places a little far. This has affected the sales,” says the expert, adding that curtailing of sale hours from 12 noon to 10 pm has also had some effect.

As long as Tamil Nadu continues its freebie and social welfare schemes, it is unlikely that the state government will look to ease the burden of costlier fuel on the average person. “Why would it care when the centre is being blamed by the Opposition, social media, and mainstream media?” wonders the expert.

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