Petrol pricing: ‘Hope’ — the last option

The government circles have shown surprise over the reaction on the recent petroleum price hike. The merits of the criticism aside and whether Karma is paying the PTI back – the magnitude of increase itself warrants a proportionate reaction. The use of “petrol bomb” will never stop if it has not in more than a decade. Life has come full circle for the ruling party on this front too.

What needs to be brought home is the point that petroleum pricing remains a revenue call. The country’s perennial fiscal crunch ensures there is never a good time to let go of easy revenue. And no revenue comes easier than petroleum’s. In absolute terms, Rs18/liter the government is charging in lieu of Petroleum Levy (PL) pales in comparison to what was being levied for most of 2020 till mid-2021.

The GST has been abolished as Brent has shown no mercy. The strategy is in complete contrast to the one in place during 1QFY22, where PL was abolished completely. What has changed between now and then? The IMF. The plan is to continue to increase the PL periodically throughout FY22 till it reaches the maximum of Rs30/liter. One is not too sure if this will work out exactly as planned. Oil price will dictate the ability to fetch maximum PL for the remainder of FY22. The IMF has somehow worked Rs422 billion on account of revised PL collection for FY22. Even at Rs30/liter for the entire second half at sustained highest-ever monthly consumption – that will fall short considerably.

The inflationary consequences will be big, on both wholesale and retail prices. The upward revisions in the distribution chain margins have often found to be irreversible too. Some may be looking for a respite in terms of demand curb as a result of high prices. So far, that has not transpired, as the combined HSD and petrol consumption has continued undeterred, despite all-time high prices.

The rub of the green has not gone the government’s way so far in terms of international oil prices. The only silver lining (if you can call it that) is that petroleum prices have been tested at record-high levels, which could offer some cushion in terms of the ability to levy maximum tax, should global oil decide to come down. Till then, it will remain tough work; one that invites criticism. Not all of it undue.