Pricing and taxation policy towards enablers:

1. Energy/Fuel

It is not understandable why the Government insists on treating fuel/energy costs as an end product. The fuel (especially when used for transport/power generation/Agriculture Tractors and Pump sets) is purely an enabler, allowing greater mobility and hence, greater reach and choice for employment, and greater productivity and employment generation.

By retaining the attitude derived from the decades old socialist paradigm, that views vehicles as a luxury and mechanization as an ill, even though it today speaks of a new paradigm of higher productivity and greater employment, the Government has positioned its taxation policy in a very regressive and restrictive way, collecting a high tax and that too as a percentage of the costs, to benefit from both increased demand and again also, from increased prices.

The best thing the Government should now do, is charge a fixed amount, say Rupees five per ltr, as its duties and taxes on fuel and let the greater demand for the fuel compensate for the fixed rate of tax. Under GST this can be shared equally with the States and thus remove the need for a separate State Tax. A low rate of tax encourages compliance, consumption and also, eliminates adulteration. To ensure that the demand can be met, the Government should open up this sector and allow anyone who wishes to import fuel into the country and distribute it here, either directly or through various marketing companies, to do so. To avoid extra drain of scarce foreign exchange let such fuel importers pay for such imports by their earning of the required foreign currency through exports, or they may also, purchase the currency required from other exporters on terms as mutually agreed to between them. Competition with Government companies and amongst themselves will ensure that the prices remain as low as realistically possible. The Telecom sector experience encourages us to expect that this way is the best for the Public.

The cost of energy (electricity) derived from such fuel sources can be worked out and charged on a cost-plus basis and the taxes thereon be kept at a minimal rate and consumption encouraged because being an enabler it would generate that much more productivity and employment. Such taxes may however, have an additional component as cess that can be increased / adjusted to compel adherence to environmental standards. The scarcity of easily available fuel sources (fossil fuels) and the increase in demand for energy will ensure that market forces bring the pricing of energy derived from any and all fuel sources (especially non-conventional and renewable) to comparable levels.

So also, the fuel used to generate electricity, it has to be deemed an enabler as its end product, energy, is further consumed in enhancing productivity and employment which are in turn subject to tax.

2. Petrol/Diesel

Key metrics:

• Almost 50 percent of the end price of each of the Fuels is some form of taxation.
• The costs of refining the crude into various fuels and its distribution is far higher in the Public Sector Oil Companies in India than in other countries. Also, the overheads in Public Sector Companies is about 22 percent in comparison to the marginally over 3 percent in private companies, an indication of scope for further price reduction.
• Though Petrol is almost entirely used for private and personal transportation, only very little Diesel is so consumed. Diesel consumption is;

Out of the 4 percent diesel consumed by cars used for personal transportation only a small fraction is used by so-called Luxury cars/SUVs (which though very noticeable in our metro cities, are actually only relatively few in number country wide, less than one percent of the cars sold each year). So calling for extra excise duty or tax on Diesel cars is merely a populist and token measure, which will really have only a negligible impact on total Diesel consumption. The taxes on our cars today total from about 40 percent or more (GST 28 percent, road tax 12-14 percent) compared to a total of only 16-20 percent in Korea and 8-12 percent in Japan, and yet the State governments keep seeking opportunities to further increase these taxes.

Diesel engines burn fuel about 30 percent more efficiently than petrol engines. It may also, be noted that the greatly improved Diesel technology brought in by the so-called Luxury car/SUV manufacturers spills over in a myriad of improvements for diesel technology as a whole resulting in better performances, fuel efficiency and emission parameters for even those diesel engines used in trucks and other sectors (Agriculture and Industry and water transport).

In Europe, even though Diesel is costlier than petrol, over 50 percent of the newer cars are still diesel powered because of such benefits and the greater efficiency of diesels. As regards fear of the exhaust being carcinogenic, this fear arises from the excess emission of pollutants in old technology diesel vehicles using high Sulphur Diesel Fuel and does not apply to the newer vehicles with far better combustion and pollution control technologies. The oil refining companies must be compelled to deliver low Sulphur fuel. The other pollutents, Nitrogen Oxide and particulate matter are however calling for better technology are a ban 2035.

As it is, Diesel vehicles are taxed at a higher rate making the average diesel car about Rupees one to two Lakhs costlier than its petrol equivalent. Diesel or Petrol used for transport is an enabler and hence, should be taxed, if at all, very minimally, as the charges collected by the transporter/carrier are in any case taxed. Controlling pollution level by banning Diesel vehicles, as it is a ‘low-hanging fruit’ is short sighted. Also, the environmental effect of other Diesel engines used in India, in Transport and Agriculture sector are an order of magnitude more than that of cars.

The Government’s decision to ban Diesel cars is not a properly thought-out decision, however the new Hydrogen and Water engine technologies will soon make it irrelevant.

3. CNG

CNG is a limited fund fuel, and the best way to arrive at its costing is to auction the blocks, deemed as prospective sources, with an appropriate revenue share for the Government and with a commitment from the bidders to supply at their quoted cost, for a specified term which can be reviewed at regular intervals. Similar to the way suggested for auctioning of spectrum as given below.

4. Electric powered Vehicles

Electric vehicles promise to soon be the transportation option that replace existing Internal Combustion Engines. Batteries and vehicles may be charged at a low rate, but the availability and net environmental costs including recycling of the materials used and of the source of generation for the required electricity should all be considered when comparing.

5. Hydrogen and Water powered engines.

Using Hydrogen and water as fuels, directly or through Fuel cells, also, requires the total costs to be considered, including generation, transportation and storage and the safety aspects. ON-Board, ON-Demand hydrogen generation for use as fuel should be encouraged by the Government, as the technology being in the public domain is not patentable hence, no private Company can afford to put in the resources to properly develop it. Hydrogen storage will require development of Graphene and other such special storage tanks.

Such new engine technologies will eliminate pollution from emissions and should be encouraged. However, the life-cycle and re-cycling effects and costs need to be considered.

6. LPG/Kerosene

To be imported as recommended for Petrol/Diesel with an export commitment for the required foreign exchange and sold competitively by both Private and Public Sector companies. The present subsidy system should be done away with and direct cash subsidy be given to the economically needy if really necessary. Alternate cooking products (coal briquettes, solar cookers, biogas etc.) should be incentivized and encouraged.

7. Coal

It is illogical that having some of the largest deposits of coal, we are allowing an exaggerated fear of damage to the environment to prevent us from using coal as a fuel more extensively. It is arguable whether the costs of damage to the environment, especially when using the newer ‘clean coal’ technologies now available, is more than the costs the lack of energy imposes on the public in terms of lower productivity, lower quality of life, lower health and so on.

“Environmental protection has to be part of the promotion of development rather than an obstacle or check on it.” – Oliver Morton.

Since coal deposits are a limited fund of fuel, they should be auctioned competitively to private mining companies and offered at the same rate to public companies. All bidders should be asked to submit both a technical bid (proving their competence) and a separate financial bid which specifies the amount of revenue share they are prepared to offer the government in addition to initial fixed amount as specified and after accepting the call of the government to provide power at a specified rate of Rs. X/kwh. Such companies would then all compete for supplying the coal to various users and thus keep prices as close to costs as feasible. Such mining companies must be required to provide a guarantee of return of the site to acceptable environmental levels after mining. A cess on the coal mined can also, be imposed and held separately solely for that purpose. If the coal blocks are allotted to the end users (steel, cement and power companies), then the auction system can be on the same lines as recommended for Spectrum below. The users could be called upon to maintain appropriate (realistically possible not idealistic) environmental pollution standards and a cess / penalty imposed for non-implementation/violation.

This will allow for greater availability of reasonably priced energy to the people which will act as an enabler, a multiplier of their abilities, and thus increase their productivity and improve their quality of life. It may be noted that even environmentally sensitive countries such as Germany and Japan are increasingly banking on coal for their energy needs, especially after the Fukushima disaster and now the Ukraine crises.

8. Frequency Spectrum

In this context, the auctioning of the spectrum to the highest bidder is a regressive step. It discounts all the extra costs such as higher prices and lesser choices etc. in the services provided to the public that will now have to be borne by the customers and seeks to provide a one-time lump sum benefit to the Government. Instead, the Government should call for bids from the prospective operators for the lowest rate at which they would be willing and able to provide stated services – voice calls, data transfer, additional services etc., from a fixed minimum bandwidth of spectrum. The bids should be opened in two stages, first the technical bid to prove the competence of the bidder and second the financial bid offering the financial terms.

Towards the cost of the spectrum allocated they can be asked to quote to offer a fixed sum, common to all bidders for a particular Circle, large enough to be effective as a motivator for early implementation, but not so large as to adversely affect economic operation, in addition to an offer of a larger revenue share to the Government, say between 20 to 40 percent.

The prices (say call rate @ 1ps/sec or bandwidth at Rs. X/Mb etc. for spectrum) and revenue share should be fixed for a stated period and increased or decreased thereafter at fixed intervals, say three years as applicable, against measurable fixed costs of the technology used. Additional spectrum can be offered on similar terms.

The offers from the bidders for each circle should be averaged across, say, the best three, to avoid unrealistic offers from outliers, and all three should be requested to submit a performance guarantee and rollout guarantee with specified parameters and with penalties for any shortfall in performance or delay in implementation. The selection of technology should be left entirely to them; it is more important that the end cost of service be optimized for both performance and economy.

With at least 3 competitors in any circle the competition would encourage the delivery of even further benefits to the consumers.

Pages: 1 2 3 4 5 6