- Jul 02 2016
Oil weathers the Brexit storm
There was little more than a business as usual environment in the oil sector in India this month. However, some developments are worth following. There was news on proposals for more refineries in India. It is not clear why this makes economic sense as the South Asian region is said to have over-capacity in refining. Interestingly, Essar is reported to have decided to double petrol pumps to 4300 in the next 18 months. We could probably take this as a decision based on belief in low or stable oil prices in the short term.
The opposition party’s claim that petrol is expensive due to taxation by the Prime Minister and the Chief Minister (of Delhi) is unlikely to lend itself to political mobilisation. Tax on petroleum products has been a source of stable revenue for governments at the central and state levels since the 1970s oil crises. All governments irrespective of party affiliation have been addicted to oil revenue since then. As some of the tax components increased in proportion to the price of crude (ad valorem taxes) revenue for governments increased with the increase in international crude prices (please refer to Data Insight). The opposition party has been in power during most of the high oil price years. The opposition party is therefore more likely to be embarrassed if some analyst takes the time to prove that it has benefited more from tax on petrol using actual numbers. The opposition party should be more imaginative in identifying causes for political mobilisation. Why not go for something positive such as the right to electricity or no house left behind for LPG?
Read the full Monitor here.