Bharath Bandh

May 31, 2012

Disclaimer : I am not affiliated to any political parties and I am not writing this on their behalf. Expressed here are my personal opinion on the matter at hand. If there is any discrepencies in the data provided then please do point it out for me to correct them

 

The title is pretty familiar when it comes to Indian Politics. A pan India “bandh” is more of a political tool to fulfil populist agenda of certain political institutions. When we look at the real meaning of this process, it means complete shutting down of the country and bringing it to its knees. Often said to be employed when the crusaders are fighting for the oppressed and helpless people of India, it mainly affects these exact same people in the worst possible manner. Besides, the reason behind completely stopping the entire nation must be quite revolutionary rather than just a populist measure as is the case for today’s bandh called by NDA in protest of increase in the Petrol price. Now the already harassed public are being harassed in yet another manner. Sure, there is also support from a section of people who are on the street, but how genuine is that support is highly questionable

It was in 1997 that Kerala High Court had ruled that these type to “bandhs” are illegal. That was the first time that political parties recieved a blow to their populist tactics. Of course this was challenged in the Apex court to which the Supreme Court in 1998, upholding the Kerala HC verdict, said that these “bandhs” are “illegal and unconstitutional” means for protest. The rational behind this is simple, it infringes the rights of other people and it is also mentioned in Constitution that gathering must always be peaceful and this we must extend to protests as well. Besides, Art 19(3) and 19(4) provides reasonable restrictions on such rights, for gathering and forming associations and unions, as interest of sovereignty and integrity of the country, public order or morality. Besides, these “bandhs” affect the most supreme of the Fundamental Right, Right to Life and Liberty (Art 21) which is affected since most people will be denied the opportunity to go to work and get access to food and medical help thereby fundamentally affecting their lives and liberty. Even without the technicality behind the verdict, it is easy to see the logic in it and yet these “bandhs” go unabated.

Even after the verdict, there have been many occasions when the Judiciary is openly ignored and the Judiciary too has stepped out and tried to protect the rights of citizens. In 2002 the Supreme Court went a step further and declared all forced hartals illegal too. The idea behind this was that we must not give into coercion or force, i.e., we must not stop our day-today lives just because a goon is threatening us to participate in a protest. In July 2004, the Bombay High Court told the Shiv Sena and the BJP to pay a fine of Rs 20 lakh, for organising a Mumbai bandh in July 2003 to protest against the Ghatkopar blasts. It was estimated that the bandh had cost the city Rs 50 crore. This had caused a lot of stir and was a slap on the face to illogical protests. In November the same year, the Calcutta High Court declared illegal and unconstitutional, the Bangla Bandh called by the Trinamool Congress. The court directed the party to withdraw the call and publish the decision in the media. By this time it was clear that these political parties were not lending their ears to what Judiciary had to say. I think such acts of defiance by these political parties had to be taken as contempt of court but that was not done. Anyway, in the year 2006, the Kerala High Court asked the Election Commission to deregister political parties calling bandhs. In June 2007, the Supreme Court took notice of the bandh called in Delhi on the Gujjar issue and described the government’s inaction as a ‘national shame’. The bandh cost the national capital region around Rs 700 crore. The July 2010 “bandh” called by opposition for the same reason of fuel price cost the economy an estimated Rs 13,000 crore loss when the “bandh” lasted for 12 hours. According to a March 2011 report of Indian Chamber of Commerce (ICC) the state of West Bengal was said to be losing Rs 8,000 crore every year due to “bandhs”. Incidentally, West Bengal is called the “Bandh Capital” of India as it sees many such protests every year.

All the above data shows one thing very clearly, such type of “bandh” is not exactly helping us as much as we want it to. The ICC report went on to show the magnitude of the loss in West Bengal. The conservative estimate of Rs 8,000 crore is 2.5% of the net state domestic product of Bengal. This is close to 5% of the total debt stock of the state government of Rs 2,00,000 crore and 50% of the interest payment on debt by the state every year. I hope the magnitude is apparent now with these figures. So, we can expect the same kind of damage after today’s “bandh”. Apart from the loses due to stoppage of work and transport, there is also the property damage by rowdy crowd. Three buses have already been torched in Bangalore and one allegedly in Hubli, they have also stoned a lot of buses and causes damage. These buses come from the money paid out of public pocket and I dont understand how these stupid people dont realise that. How hard can it be? They say they torched the bus to get the authorities to stop the bus service. Is it really necessary to burn the bus? cant you just block the road while you are disrupting the lives of people? Some people even harm the private properties, vehicles parked on the side of the road. When people buy a car or a bike, they have emotional attachment to it since most of the times it comes from their first salary or it will be a gift. But these mindless brutes just turn these vehicles into wrecks as we have seen in many protests previously. I sometimes feel such people join the protest only to plunder everything in their way without even knowing what they are protesting. So, in the end, these political parties call for “bandhs” even after being aware of all these facts which is “illegal and unconstitutional”

Just to highlight the hypocrisy behind this I will tell you one more tale. Remember the great crusader against graft? Anna Hazare? Out of all the negative publicity one that was prominent towards the declining peak of the protest was how the methods employed by him was “unconstitutional”. These were the same methods employed by Gandhi during the freedom struggle. At that time it was justified by the fact that British did not and would never have had the best interest of Indians and therefore needed to be ousted. After Independence, such methods were not to be employed as was said even by Dr. Ambedkar. But, was the method employed by Anna Haraze as extreme as that of Gandhi? I dont think so. There was no widespread non-cooperation or civil disobedience in case of Anna Hazare. Besides, the ineptitude of successive governments has made it clear that such extreme methods are necessary to move the government to do its job honestly. When all these political parties condemned Hazare of employing unconstitutional means and holding the government hostage, what exactly are the same politicians doing right now? Ignoring multiple rulings of High Courts and Supreme Courts and trampling on the constitution to achieve what? Bangalore has the highest price for Petrol and is being governed by BJP, a Key partner of NDA which has called for this “Bandh”. Why is the price so high? because of the high taxes. And what did they do to alleviate the burden on the public? They have proposed to shut down the country and incur more loses which will be later paid up by the same public. That is what is the definition of Hypocrisy.

In conclusion, I call everyone to know your country and your law. Know your system before you blame it or say it cannot be changed or improved or saved from ultimate doom. A system is only as good as its components put together and that is us. Dont let anyone eye wash you by saying that the fuel price hike is necessary due to loses incurred and “bandh” organised in the protest of this fuel price hike is in best interest of “common man”. A very distorted term this “common man”. It is he who truly wields the power in the system of Democracy and yet it is he who is being marginalised today and the tragedy is not that. The real tragedy is that he himself is responsible for this situation that he is in. A true transformation can never be provided by one person acting as a leader and everyone as sheep and following him. A true transformation comes from being aware, individually and collectively. That alone will lead to liberation.

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Fuel pricing – My Analysis

May 24, 2012

Disclaimer : I have not done a lot of research on this, at least not up to my satisfaction and therefore the data I present is not exhaustive and at places an approximation rather than the accurate value. I have tried to be as close to reality as possible but any major deviations from the actual is due to the lack of deeper research. Please feel free to correct the figures if necessary

Today the petrol price was hiked by Rs 7.50 inclusive of tax or Rs 6.28 exclusive of tax as has been reported. This reminded me of the various price hikes in the recent past and the discussions associated with them. So, I decided to assess the situation and did a bit of googling myself. So, what I present here is my logic and what data I could mop up from the search. First, I want to analyse the price of Rs 81 that we will be paying here in Bangalore for Petrol.

The most recent quote of an IOC (Indian Oil Corporation) official says that the base price (i.e., production cost) of Petrol is about Rs 36.53 per litre. Now, lets add the hike of Rs 6.28 to this and it comes up to Rs 42.81. This is the actual cost of Petrol produced by the Refineries. Now comes the various taxes.

The central government levies

  • Rs 6.35 per litre basic cenvat duty
  • Rs 6 per litre special additional excise duty
  • Rs 2 per litre additional excise duty towards highway cess (Cess means “tax on tax” for special purpose, in this case the Highways. The entire 2 rupees is invested in the Highway projects)
  • A 3 % education cess. The total of previous 3 comes up to 14.35 and cess of 3 % on this will be Rs 0.43 (Cess = tax on tax) Hence, total comes up to Rs 14.78 per litre. The amount 14.35 before education cess is fixed in the budget and does not vary.
  • A Central Customs duty on Petrol of 7.5 % on base price (42.81) which is Rs 3.21.

State Governments also levy taxes on fuel and they vary from State to State. In Karnataka there are two more taxes to be added

  • A 5 % entry tax or Octroi on the base price (42.81) which is Rs 2.14
  • A 25 % sales tax or VAT on base price (42.81) which is Rs 10.7

Over and above this there is a dealer commission of Rs 1.05 and Approximate Transportation charges of Rs 6. So, the total approximate price of Petrol becomes (42.81 + 14.78 + 3.21 + 2.14 + 10.7 + 6 + 1.05) Rs 80.69. Please note that this is the approximate price which is pretty close to the average Petrol price from various dealers. There is difference of Rs 30.83 between base price and cost price (Excluding transportation and dealer commission). This means that we are paying about 38 % tax on the Petrol we are using. At this point I can definitely point out how USA taxes approximately about 10 % and China about 20 % on Petrol. But I dont think comparison is necessary here to say 40 % tax is pretty high. Even income tax is not so high.

Another aspect related to this tax is the subsidy part where I lack clarity. So, this analysis will be inconclusive, yet it may give some perspective on the problem. In 2010-11, Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation paid Rs 92,176 crore to the central government in customs duties and excise taxes plus an additional Rs 78,690 crore in sales tax or value-added tax (VAT) to state governments. In the same year 2010-11, these companies under-recovered (that is what they call the losses incurred due to subsidies) Rs 78,190 crore because of the government order that they sell petrol, diesel, LPG and kerosene at prices below cost. 2010-11 was not a unique year. Every year for the past five years, these three companies have seen an erosion in their net worth. Oil Marketing Companies (OMCs) hit an all-time highest under-recovery of Rs 1,38,406 crore in 2011-12. They are said to be losing Rs 500 to 550 crore every day. This is all mind-boggling but what does it all mean?

What is this under-recovery? In layman’s words it is the difference between the government subsidised price and the actual market price. But for more formal analysis we can listen to what Government says about it. The government measures under-recovery as the loss that an OMC would make if it imported a petroleum product, say Petrol, from the international market and after paying ocean freight, import charges and customs duty and incurring inland transport and marketing costs, sold the product to a dealer at the government specified price. Some questions arise when this is read. This is not done to Petrol in its entirety, crude is bought and then refined here on our land. So, it is my inference that the price fluctuations in Petroleum products must happen due to refining capacity shortages. Basics of economics, demand-supply relations. When demand is more and supply is less due to shortage in refining capacity, prices will rise. So, refining costs here and elsewhere will definitely differ and that is why when you calculate for “under-recovery” using international prices there will be a difference since its a refined product you are taking into account and not crude oil. Same concept applies to the international market as well where the Petrol price may increase due to higher demand and we will sit here and calculate the under-recovery based on inflated prices in international market thereby exaggerating the amount of under-recovery. This is where I stopped since I noticed a lack of transparency in calculations of these values. I have to dig deeper to get the details, I got some figures about the subsidies though. The Excise duty paid by the companies and the subsidies given is shown below

Excise and subsidy comparison for 2010-11 (Rs crores)
IOCL BPCL HPCL TOTAL
Excise 30861 12394 9743 52998
Subsidy 24282 10048 9727 44056

So, as we can see from above it looks more like tax refund than subsidy. Now we will take a little detour and learn about the Oil companies in brief

There are three types of oil companies:

  • Upstream companies (Indulged in exploration of hydrocarbon)
  • Midstream companies (indulged in refining of hydrocarbons)
  • Downstream companies (indulged in retailing and marketing)

There is no issue of losses in case of Upstream and Midstream marketing companies. The losses are made by the marketing and retailing companies. In-fact because of Import Parity Prices, the Upstream Companies make heavy profits. (Import Parity Prices make the prices of both domestic production as well as imported price at par. Thus the increase in global prices improve the profitability of Upstream Oil Companies). Thus it is the Marketing and retailing companies that has to bear the burnt of the losses between the international prices and the retail prices in the country. In order to bear this losses the government gives the budgetary allocation in the form of fuel subsidy while a part is now shared by the Upstream Oil companies like ONGC, OIL, etc. So, what does this mean?

Private oil producers like Reliance, Cairn, etc get rights to oil fields after signing production-sharing contracts with the government. These contracts mandate selling oil to Indian refiners at no less than the prevailing international prices. The contracts are structured such that government’s share of production will increase if the producers get a higher price for the oil. While providing the government with another source of revenue, these contracts, by locking Indian oil produce to international prices, ensure that the Indian public does not enjoy the benefits of local production since the oil we find in our land is still as costly as the one we import. This does has a reason that this will attract private investors to help in exploration but how genuine is this reason I am not sure. The government treats the public sector oil producers like ONGC, OIL, etc somewhat differently, based on historical imperatives. They must sell their oil at a ‘discount’ to international prices to the public sector refiners. The ‘discount’, however, is not tied to the rise in international prices or the windfall profits made when this happens; it is fixed every quarter, at the government’s discretion.

After having understood the mechanism lets see how these companies are doing. The Q1 results of 2011-12 showed a combined loss of around Rs 9000 crores by the OMCs. Then, the government delayed the Q1 subsidy cash payments, forcing the OMCs to borrow from banks and pay high interest charges to finance crude oil imports since they did not have enough liquidity to buy. This resulted in them posting a loss of around Rs 14,000 crores in Q2 results of 2011-12. Again, this time the announcement of Q2 subsidy itself was delayed. Apart from this the public sector oil producers provided sharply lower ‘discounts’ to the OMCs on crude oil price in Q2 compared to Q1 and showed sharply climbing profits. Remember that this ‘discount’ is at government’s discretion. While Oil producers showed sharp profit OMCs posted huge losses. Isn’t this a very favourable climate for price hike of retail petrol citing that the under recoveries are mounting and the OMCs are in huge losses? This is somewhat suspicious behaviour and I did not get much material for the more recent times which has lead to price hike of Rs 7.50. I tried to find the data for the past few months but I didnt get lucky yet I didnt dig deeper. Hence, this whole analysis will remain inconclusive beyond any doubts. But the policy and procedure of this whole “under-recovery” business will remain the same even now. So, an approximate conclusion can be reached that this policy is neither transparent enough nor sound enough to continue like this.

The central government has several revenue streams from petroleum products collected at different stages of processing. At the crude oil stage, it collects royalty, a share of the production (from private producers), and excise on oil produced and customs duty on the oil imported. At the refining stage, it collects excise on the refined products such as diesel and petrol. Oil producers, refiners and marketers also contribute to the central exchequer by way of taxes on their profits, dividends and tax on the dividends. State governments collect royalty on crude oil and sales tax on petroleum products. Sales tax rates range from 18-25 per cent on diesel and 19-33 per cent on petrol, with a few exceptions. Last year, the central government’s income from the public sector oil & gas producers, refiners and marketers alone was in excess of Rs 1,00,000 crores. State governments were not far behind, collecting over Rs 80,000 crores. In fact over the past five years, the government has collected Rs 3,48,987 crore in customs and excise duties. Over the same period, companies have under-recovered an almost equivalent amount (Rs 3,54,043 crore). Taxes on petroleum products add to the cost of all goods and services and reflect in their prices. Far from subsidising the public, governments made the public bear a substantial part of their expenditure.

This is where I get confounded as to what is subsidy and what is tax. There have been many suggestions to deregulate the prices but there are apprehensions as to the huge fluctuations of crude oil prices (it had crossed $ 150 mark once) can affect this adversely and rightly so. The subsidy mechanism cushions us from such market fluctuations but at the same time the current mechanism too is not helping us in anyway. Indian consumer pays more for petrol compared to many other developing and developed countries. Both the Centre and states levy taxes on the petroleum sector. But increasingly, the sector has attracted attention not only for its taxes but also subsidies, reflecting the tangle of taxes and subsidies in which we are caught up in terms of collecting revenues, subsidising consumers and encouraging investment in the sector. Even the proposed goods and services tax leaves the petroleum sector out of its ambit. Many questions arise out of the above discussion. Should upstream companies use their resources for new investments to find fuel for the future? Which expenditures would the government have to reduce to meet the additional subsidy bill? Should cheaper diesel benefit the use of luxury automobiles (as it is basically for farmers)?

This issue is embedded in a larger question that has an impact on an already delicate fiscal position. With the current status of our fiscal deficit reduction of tax revenues, and that too in Petroleum sector which is a major contributor, is not a viable option ; how will the government meet the revenue shortfall? Obviously, it cannot touch subsidies in the sector at the same time it reduces the taxes. This will not help the consumer. It may need to cut some other expenditure or run higher deficits. Also, we wake up to this problem only when there is a price shock through higher crude oil prices or Rupee depreciation. Without a more comprehensive approach to addressing at least the fiscal implications, merely cutting taxes on petrol would not lead to any real benefits. So, the issue when looked at on the surface appears to be simpler than it really is. Only a comprehensive change in the policy will be able to provide a lasting solution to this problem. Periodic price hikes or tax cuts will only be short term patches rather than solution to the problem and it might also increase the problem over time.

Since this is only an analysis I will end this here. Any attempt to find a solution requires deeper knowledge of the dynamics involved in this sector. Any different perspective on this is always welcome.


Child Sexual Abuse

May 13, 2012

I remember how Childline (1098) was being propagated as institution that would pick up leftover food from parties to feed homeless children. It was shared by millions on Facebook and many others by emails and other social networks. Ignorance and apathy is what rules these days. I am saying it again just go to http://www.childlineindia.org.in and see the popup. How many calls would they have got and maybe even getting now. That aside, there is a subtle discussion in this show about the real problem our system is facing when it comes to laws. Protection of Children Sexual Offences Bill, 2011 has been passed in Rajya Sabha about 2 days back (It was not passed when this episode was shot I think).

Now this is a commendable task accomplished by the Government. However, TOI has put up a news article saying that this Bill is draconian since it has increased age of consent from 16 to 18 and to quote them, “…but it also seeks to criminalize teenage sex, making any intercourse below 18 years of age an offence”. As has been the reputation of TOI I was not inclined to believe them and took a look at that bill. The clause reads as below (Click here to see the bill)

“…..Provided that where such penetrative sexual assault is committed against a child between sixteen to eighteen years of age, it shall be considered whether the consent for such an act has been obtained against the will of the child or the consent has been obtained by use of violence, force, threat to use force, intoxicants, drugs, impersonation, fraud, deceit, coercion, undue influence, threats, when the child is sleeping or
unconscious or where the child does not have the capacity to understand the nature of the act or to resist it.

Explanation I.— For the purposes of this section,—

(a) “consent” means the unequivocal voluntary agreement where the person has by words, gestures, or any form of non-verbal communication, communicated willingness to participate in the act referred to in this section;

(b) “unequivocal voluntary agreement” means willingness given for specific and be limited to the express act consented to under this section.

Explanation II.— A child, who does not offer actual physical resistance to penetrative sexual assault is not by reason only of that fact, to be regarded as consenting to the sexual activity.”

The bill never talks about consent when it comes to children below 16 and it qualifies what consent is for age 16 to 18. Explanation I gives you the right for consent and Explanation II tells you what is not accepted. After reading this just read the comments on the TOI article and you will see that I am right when I say ignorance and apathy rules these days. This piece of legislation definitely has loop holes like the Dowry Law that can be exploited and used against the innocent but it definitely does not seek to penalize all teenage sexual acts. Ladies and gentlemen, this is journalism in this country and the citizens who believe everything they read in newspapers like TOI or watch on shady news channels.

Below is the video that inspired a part of this article