Fuel oil price adjustment could have been made by reducing tax: Selim Raihan

Selim Raihan

The government has increased the price of fuel oil by a record margin, effective from 12:00am on 6 August. Economist and professor at Economics department of Dhaka University, Selim Raihan, talked to Prothom Alo on the perspective of fuel price hike, its rationale, and its impact on economy and ways out.

Q :

With middle class and lower-income people already suffering immensely from the coronavirus pandemic, the Russian-Ukraine war and the inflation, how much pressure will this record fuel oil price hike create on people’s lives?

Global oil price has seen an abnormal rise recently and a hike in oil price was oblivious amidst the overall global situations, but oil price has been increased at such a rate in the country, which is unusual. Such price hike never happened in the history of Bangladesh. The overall economy is already under pressure, a post-Covid recovery process was underway and inflation also creates a big pressure on people’s lives; so, I do not think the decision on such abnormal oil price hike is logical amidst such situation. This abnormal price hike is also illogical for another reason and that is oil price sees a downtrend in the international markets. So, how this decision was taken and in which process? In this case, a big question remains on transparency and accountability.

Oil price hike is going to have a big impact. If price increased at a logical level, its impact would be tolerable; now there will be negative impact on various sectors of the economy. We have already witnessed the impact on transport sector. Agriculture would be affected too. Overall, there will be another big shock of inflation on people’s lives.

Q :

This hike in price of fuel oil at at a time will have a big shock on people’s lives but why are we not seeing any clear stance on easing this impact?

The question is; has the government taken into consideration that how much the decision on oil price hike will affect overcall economy and people’s lives? If there had been any such analysis and consideration, the government would have thought before increasing the price abnormally. We have seen the immediate impact on transport sector and anarchy on road. We have seen in the past that there has always been a lack of transparency in raising transport fare accelerated by the oil price hike. Transport fare is increased abnormally and illogically compared to oil price hike. In addition, it is not wise in any way to take such a big economic decision without considering these issues.

Q :

How will general people tackle such a big shock?

General people will try to cope with such a big shock in many ways. Prior to this, people tried to manage crises like coronavirus and inflation. People adjust with the situation, consuming less food, and cutting medical and education expenditure but such adjustment has impact in the long run. Such a big decision was taken but how much of general people’s comfort was ensured? What measures are the government taking? Will there not be accountability in case of such big economic decision? What are the government’s programmes for the poor and the middle class facing additional pressure? A big pressure has been created and what the government will do to mitigate it and that is not clear at all.

Q :

It is being said the government is lifting subsidy on fuel in light with the conditions to get loan from IMF. Was there no alternative?

Entire energy sector has no proper management system. Since there is no transparent process, we have become surprised that how this decision was taken. Talks with IMF for loan just only began. The IMF might say you are providing big subsidy on energy sector and that may create a big pressure on budget, so this things will have to be adjusted, but that does mean subsidy on energy sector will have to be lifted entirely. There is a lot of scope for bargaining with IMF. It is not obvious that we have to obey everything what IMF will say. Real situation of the country will have to be considered in many places of policymaking. I think many decisions are being taken very quickly and there are scopes for revaluating these decisions.

Q :

What do you think the government should do in this situation?

There are four things to do for the government. Firstly, it is necessary to reconsider the increased fuel oil price. It is true that Bangladesh Petroliam Corporation (BPC) is incurring loss but they also profited big at some point, so it could have been adjusted from there easily. The government must find out the scope to raise fuel oil price logically.

Secondly, it has not been clear yet over these years that through which process the fuel oil price is fixed. What is the equation or process here? It is necessary to have a transparent process for it. If oil price increases in international markets, necessary price will be hiked locally through that transparent process and the scope of slashing oil price quickly must be ensured following global price fall. Oil price is adjusted in India regularly and many South Asian countries also follow this process but we do not have any transparent process.

Thirdly, there are a big tax including value added tax (VAT) on fuel and that is 30-32 per cent, the government could have reduced tax during this crisis and it would not be necessary to raise the fuel oil price at such level. The government is trying to gain from fuel in two ways. One is that the BPC faces no loss by any means, so they adjusted price with the international market and again, revenue is being collected by imposing tax on fuel. However, both policies should not be upheld during this crisis. The government says they have adjusted the prices, so where tax can be rebated within the adjustment, should be evaluated.

Fourthly, a big negative impact is going to have on the poor and the middle class people; entrepreneurs of many economic sectors including small traders will face immense pressure, and it must be ensured what sort of assistance programmes the government is taking for them.

Agriculture sector saw big decisions at a time. Price of diesel increased with a huge margin at a time after the rise in fertiliser price. Farmers will adjust with fertiliser price by reducing expenditure but irrigation cost will rise due to increased diesel price. In this case, the government must continue the existing assistance programme in agriculture sector. The government will have to consider whether a diesel card can be introduced for farmers. Each farmer will receive a subsidy through a diesel card. Otherwise, a big shock will hit the agriculture sector.

*This interview appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna