In April last year the government had notified the Information Technology (Intermediary Guidelines) Rules, 2011 (IT Rules) under the Information Technology Act, 2000. The IT Rules are listed for discussion in Rajya Sabha today in pursuance of a motion moved by Mr. P. Rajeeve [CPI(M)]. The motion seeks to annul these Rules and recommends that Lok Sabha also concur with the motion. The IT Rules require intermediaries (internet service providers, blogging sites like Blogger and Wordpress, and cyber cafés) to take certain action. Intermediaries are required to enter into agreements with their users prohibiting publication of certain content. Content that cannot be published includes anything that is ‘harmful to minors in any way’, ‘blasphemous’, ‘encouraging money laundering’ etc. This raises three issues. Some of the categories of content prohibited for publication are ambiguous and undefined. For instance, ‘grossly harmful’ and ‘blasphemous’ content are not defined. Publication of certain content prohibited under the IT Rules, is currently not an offences under other laws. Their publication is in fact allowed in other forms of media, such as newspapers. Newspapers are bound by Press Council Norms. These Norms do not prohibit publication of all the content specified under the IT Rules. For instance, while these Norms require newspapers to show respect to all religions and their gods, they do not prohibit publication of blasphemy. However, under the IT Rules blasphemy is prohibited. This might lead to a situation, where articles that may be published in newspapers legally, may not be reproduced on the internet for example in the e-paper or on the newspaper’s website. Prohibition of publication of certain content under the IT Rules may also violate the right to freedom of speech. Under Article 19(2) of the Constitution restrictions on the right to freedom of speech may be imposed in the interest of the State’s sovereignty, integrity, security and friendly relations with other States, public order, morality, decency, contempt of court, and for protection against defamation. The content prohibited under the IT Rules may not meet the requirement of Article 19(2). This may impinge on the right to freedom of speech and expression. Further, anyone can complain against such content to the intermediary. The intermediary is required to remove content if it falls within the description specified in the IT Rules. In the event the intermediary decides not to remove the content, it may be held liable. This could lead to a situation where, in order to minimise the risk of liability, the intermediary may block more content than it is required. This may imply adverse consequences for freedom of expression on the internet. PRS’s detailed analysis of the IT Rules may be accessed here.
Petroleum Secretary S Sundareshan, while addressing a press Conference on Friday, announced the government’s decision to deregulate prices of petrol. Petrol prices shall now be subject to periodic revisions based on fluctuations in market prices. An immediate hike of Rs. 3.50 per litre has already been affected. Prices of diesel shall be deregulated in stages while those of kerosene and LPG shall continue to be regulated by the government. For the moment, diesel has been hiked by Rs. 2 per litre, kerosene by Rs. 3 per litre and LPG by Rs. 35 per cylinder. Crude to retail: Pricing and under-recoveries India imports about 80% of its crude oil requirement. Therefore, the cost of petroleum products in India is linked to international prices. The Indian barrel of crude cost $78 in March 2010. Once crude is refined, it is ready for retail. This retail product, is then taxed by the government (both Centre and State) before it is sold to consumers. Taxes are levied primarily for two reasons: to discourage consumption and as a source of revenue. Taxes in India are in line with several developed nations, with the notable exception of the US (See Note 1) Before the current hike, taxes and duties in Delhi accounted for around 48% of the retail price of petrol and 24% of the retail price of diesel. (Click Here for details) Ideally, the retail prices of petroleum products should then be determined as: Retail prices = Cost of production + taxes + profit margins However, in practice, the government indicates the price at which PSU oil companies sell petroleum products. Since these oil companies cannot control the cost of crude (the primary driver of the cost of production) or the taxes, the net result is an effect on their profit margins. In cases where the cost of production and taxes exceeds the prescribed retail price, the profit margins become negative. These negative profit margins are called ‘under-recoveries’. When international crude prices rose above $130 in 2008, under-recoveries reached an all-time high of Rs. 103,292 crore. Even at much lower prices in 2009-10 (averaging at $70 per barrel), under-recoveries totalled Rs. 46,051 crore. (See Note 2) The latest move is an effort to reduce these under-recoveries. The government cited the recommendations of the Kirit Parkih Committee while announcing its decision (Summary - Kirit Parikh Committee report). Any alternatives to price hike? As is evident from above, under-recoveries can also be reduced by decreasing taxes. In fact, one might argue that by both taxing the product and offering a subsidy, the government is complicating the situation. Usually whenever subsidization coexists with taxation, it serves the purpose of redistribution. For example, taxes might be collected universally but subsidy be granted to the weaker sections only. However, this is not the case in the current situation. What needs to be noted here is that these taxes are a very significant source of revenue. In fact, the total taxes paid by the oil sector to the central and state governments were around 3% of GDP in 2008-09 (See Note 3). Reducing taxes now might make it difficult for successive governments to raise taxation rates on petroleum products again. Moreover, though taxes are levied both by the Centre and the States, the subsidy is borne only by the Centre. Hence, the current arrangement is beneficial to the States. Possible future scenarios The opposition has voiced concerns that the hike in prices is likely to lead to even higher inflation and will further burden the consumer. The Chief Economic Advisor to the Finance Ministry, Dr. Kaushik Basu, however, told the media that these changes would have a beneficial effect on the economy. According to him,
"The (decontrol of petrol prices), coupled with price increase for LPG (cooking gas) and kerosene, will have an immediate positive impact on inflation. I expect an increase of 0.9 percentage points in the monthly Wholesale Price Index (WPI) inflation".
However, he added, that since the hike in fuel prices would push down fiscal and revenue deficit,
"they will exert a downward pressure on prices… More importantly, from now on, if there is a global shortage and the international price of crude rises, this signal will be transmitted to the Indian consumer. It will rationalise the way we spend money, the kinds and amount of energy we use, and the cars we manufacture. It is an important step in making India a more efficient, global player”.
It remains to be seen how the actual situation pans out. Notes 1) Share of tax in retail price (%)
| Country | Petrol | Diesel |
| France | 61% | 46% |
| Germany | 63% | 47% |
| Italy | 59% | 43% |
| Spain | 52% | 38% |
| UK | 64% | 57% |
| Japan | 48% | 34% |
| Canada | 32% | 25% |
| USA | 14% | 16% |
| India (Del) | 48% | 24% |
Source: Petroleum Planning and Analysis Cell, PRS (Data as of Feb, 2010) 2) Under-recoveries by oil companies (Rs Crore)
| Year | Petrol | Diesel | PDS Kerosene | Domestic LPG | Total |
| 2004-05 | 150 | 2,154 | 9,480 | 8,362 | 20,146 |
| 2005-06 | 2,723 | 12,647 | 14,384 | 10,246 | 40,000 |
| 2006-07 | 2,027 | 18,776 | 17,883 | 10,701 | 49,387 |
| 2007-08 | 7,332 | 35,166 | 19,102 | 15,523 | 77,123 |
| 2008-09 | 5,181 | 52,286 | 28,225 | 17,600 | 103,292 |
| 2008-09 | 5,151 | 9,279 | 17,364 | 14,257 | 46,051 |
Source: Petroleum Planning and Analysis Cell, PRS 3) Contribution to Central and State taxes by Oil Sector (2008-09)
| Category | Rs (crore) |
| Sales tax | 63,349 |
| Excise duty | 60,875 |
| Corporate tax | 12,031 |
| Customs duty | 6,299 |
| Others (Centre) | 5,093 |
| Other (State) | 4,937 |
| Profit petroleum | 4,710 |
| Dividend | 4,504 |
| Total | 1,61,798 |
Source: Petroleum Planning and Analysis Cell
