REMOVAL OF TAXES ON OIL- A SOLUTION?

Petrol prices are just going up north. The petroleum industry is not able to manage itself and is constantly in red. Government is not permitting these companies to raise its prices to minimise its losses.  The industry- hit by high crude prices, depreciating rupee thereby escalating import payments, inflation, political constraints, policy paralysis and taxes has not helped the cause.

Taxes form major part of the oil prices. Taxes levied are Excise duty, octroi, state vat and so on. Excise duty of Rs 14.78 is levied on a litre of petrol. 20% vat is charged on oil. Also entry tax varies from state to state. Eg: UP levies 5% entry tax. They are forced to pay huge amount of tax without availing the benefit of credit on taxes. So these amounts are passed on the common man. We end up paying nearly Rs22-25 on taxes. One third of prices paid by us are taxes on petroleum.

Taxes which we pay adds to the government exchequer. But again the tax amounts are not effectively utilised by the government. (Refer earlier article- why should I pay taxes) Some of the amount collected as taxes is returned to the PSUs in form of subsidies. With ever increasing prices, PSUs just cannot get out of the red zone.

What is the solution we have in front of us? If taxes are removed for a short term period on oil, it would turnaround the company. Even if the global crude prices increase, it will not impact the ultimate common man. At the same time, it will help the PSUs recover their losses and show profits, if possible. Again, PSUs will use the funds in a better way compared to the government. It will also enable the investors take informed decision as some of these companies are listed on stock exchange.  Government will not be required to infuse capital and bail them out from being a sick company.

So by following rotational policy on taxes on petroleum, it will be a win-win situation for everyone, be it the common man, company, government, banks and so on. But the government will not let the taxes go as it is one of the major sources of income for them from this industry. But they need to analyse the present situation and take such a move. There will be demand from people to lower the prices. But considering all aspects, it will solve huge number of issues for the government such as inflation, growth, subsidy and so on.

INDIAS POOR FOREIGN POLICY

China is playing its cards very well in terms of foreign policy. What it has done is, that it is giving importance to those countries, which India has been ignoring and developing a great rapport with these countries. Countries are Sri Lanka, Bangladesh, Myanmar, Pakistan, Bhutan, Maldives etc. Over the past few years India has been following the policy of looking west, especially United States of America and European nations. During this policy of looking west, India has sidelined its vulnerable neighbors and the other Asian countries.

I can’t remember when an Indian Prime Minister last visited Sri Lanka, Maldives, Nepal or Bhutan. Dr Manmohan Singh’s visit to Bangladesh was second visit ever by an Indian Prime Minister. We often see Sri Lankan President and Maldives President coming to India, but they are quite often sidelined in India by Ministers.

Also due to political pressure India did not enter into water treaty with Bangladesh and voted against Sri Lanka in UN on human rights. The centre did not want to do this, but were compelled to do, so as to remain in power.

China has gone up big strides in investment in African and Middle East companies. They are helping those countries develop, as well as secure supply of oil and cover India from all direction. India and China share bitter relations. However, India has not taken adequate steps to improve its relations with China. India unfortunately is surrounded by volatile neighbors. India is also deviating from its very old alliance partner, Russia and getting closer to USA.

Now this policy will hurt India as USAs main concern is China.  We saw when USA was having great relation with Pakistan, how India was treated.  India has to improve its relation in Asia as this region is the NEW WORLD ORDER. The entire world is looking to Asia to bail the other continents out. But India is going back in ages.

It’s time for India to wake up and revamp its foreign policy. Bring its Asian counterparts into confidence. India cannot succumb to political pressures within the country and from USA and other nations. India as a country needs to take independent stand for the good of India.

WHY AIR INDIA WILL NOT DIE

The aviation sector has been hurt with rising cost of fuels, inability to meet its day to day operational expenses and high user fees charged by AAI. Beside this, rise in service tax rates also is not going to help these companies.

With mounting losses, government’s consideration for 49% FDI in aviation sector is a welcome relief.  Air India is no different to this scenario. We quite often see regular strikes by the employees of the company for non receipt of their salary and for various other reasons. With liabilities over Rs 40,000 crores, the aviation is surely headed down south.

Government is now going to infuse Rs 30,000 crores over the next 8 years. Capital infusion will take place in phases.  However this isn’t the solution. Air India is in a vicious trap, for which GoI is happy to be in.

Now, why will the GoI, will not let Air India die or divest its stake? There are many reasons. It is the only airline where ministers can fly free of cost for “n” number of trips in a year be it for official or personal purpose, self or family.

In which other airline will you see flights delayed, or sent to a place, where ministers close family members can board the flight?

It’s all rubbish, by the government that Air India, the age old Maharaja is a matter of pride and prestige for India and it cannot simply be left to fall apart.  With the amount of money they are infusing to Air India, with the same money a lot more development can take place around the country.

Giving absurd orders for purchase of planes, poor customer service, bureaucracy and red tapes has affected Air India. But there is a solution to any problem and this one surely does.  Japan Airlines was facing a similar problem and was well turned around. Air India should take lessons from Japan Airlines turnaround and implement it in a way to suite the Indian needs. This needs to be done at the earliest.

The government cannot continue to burden the tax payers for its own repeated mistakes and needs to end this soon.

IS INDIA MOVING TOWARDS RECESSION?

India had a really good growth rate prior to world economic recession prior to 2009. Our GDP growth rate was at double digits.  Indian economy managed to whether the storm of global economic slowdown.  Our nation grew 4 times faster than some of the world’s best economies.

Over the last year and half, our country has seen a complete turnaround. Our GDP growth is going down due to slowdown in industrial growth, inflation, rising fiscal deficit, poor governance, poor market & investor sentiments, and inability of government to bring about economic reforms, policy paralysis affecting FDI, loss of confidence of corporate, public and so on. Also corruption scandal, which props up everyday has not helped our country, thereby projecting India as one of the most corrupted countries in the world and poor investment country because of recent amendments in taxation (GAAR, Vodafone amendment). To earn those Rs 10,000 crores despite the landmark judgement of honourable Supreme Court in Vodafone case, It will trigger the outflow of FIIs from the country.

Growth had come down last year at 7.7 per cent in Q1 to 6.9 per cent in Q2 to 6.1 per cent in Q3 and investment had gone negative in Q2 and Q3. The IIP productions are continuously decreasing. The recent rate cut in RBI will not have much of impact as interest rates are still on a higher side, thereby ensuring the cost of capital is still higher.

The job creation in market is not happening at a rate at which it should have been. Actual tax receipts are nowhere close to budgeted tax receipts. Real estate sector is also going through a rough patch. Stock market is also very volatile and investors are staying out of it. INR has been depreciating against USD, euro, GBP and against all other currencies, and is reaching the peak in terms of fall in money value. Recent S&P downgrading has not helped the cause either.

 All these are signs that our country is going in to recession. We are accusing the Euro crisis, Japan Earthquake, slowdown in growth of China, Middle East crisis as slowdown in growth of the Indian Economy. But this isn’t the actual reason. Our country has dug a hole for itself. We have no one to blame today than ourselves. The coalition government is a serious hurdle and one of the main reasons for the situation we are in today.

What can we do from here to prevent such a situation? First of all the government has to be bold and bring about big economic reforms to stimulate the growth in our country. GST, DTC, opening up of various sectors through FDI, decontrol of fuel prices, improving the system of PDS avoiding wastage of food, thereby maintaining a check on inflation, learning lessons from Global economic slowdown in 2008, Euro crisis would help. Also a check on fiscal deficit is need of the hour along with bringing in more transparency in to the system thereby mitigating corruption. Decisions need to be taken quickly with accuracy.

Time for change has come. 2^nd part of 1991 is now required to prevent our country from going into recession and to those pre 1991 days.