There was more evidence on display earlier this week, how limited is the government’s ability to increase petroleum prices. Arab Light crude oil averaged $75.4/bbl – highest in three years. That in rupee terms at Rs73.7/ltr is the highest in seven years. And that is the key number. The impact of seven-year high base petrol price had to be diluted with the lowest ever incidence of Petroleum Levy. This is how pressed the government is.

Ever since the imposition of Petroleum Levy, June’s second fortnight has the second lowest tax incidence on petrol, in percentage terms. Two more dollars a barrel and the PL could completely be wiped out. There has been lots of questioning going around the government’s reluctance to charge higher PL. Some are even going to the extent of linking it with Dar’s overvalue currency policy. It is surely not that by any stretch of imagination, but sure does have fiscal consequences. And not minor ones.

The rather tall PL target set in the recent budget for FY22 makes it more perplexing for observers, who are questioning the rationale for this pricing policy. The most obvious criticism is that the decision is politically motivated and not based on economic rationality, and that could cost billions of rupees to the exchequer, and the fiscal deficit would rise (and be financed), and the axe could fall on development spending, especially since PL is not part of the divisible pool.

Most of it is fair criticism, if achieving the PL and fiscal deficit targets are considered the main objective. What is being missed is the fine print that the government’s finance team in no uncertain terms has declared to go for all-out growth, with the Finance Minister even saying “enough of stabilization”. What hurts growth? High petroleum prices. Every single time when petroleum prices have gone higher year-on-year, the GDP growth has slowed down. Coincidence much? Don’t think so.

So, the question that critics must try and answer is whether achieving or getting close to the PL collection target at all (in capital letters) costs is worth it. Is it worth disrupting the newfound growth momentum so early in the journey? What is the estimated loss of revenue that will result from a lower-than-projected GDP growth, when prices go high trying to maximize PL?

Make no mistake, the PL target was always bordering on the extreme and was never going to be achieved, even if oil had stayed at FY21 levels. Inflation is a real concern, and it may look easier sitting outside, to simply make everything a pass-through item, but it is not. Petroleum is bigger than power in terms of value, and the impact the prices have on economic activities must not be undermined.

Mind you, there could always be the option to lower the GST and raise the PL, if fiscal deficit ever becomes the primary concern. The government has so far refrained from doing that, and may not go that route anytime soon, but cannot be entirely ruled out. Saudi oil facility looks closer than ever before, if Tarin’s words are to be believed. That should ease the concerns on the balance of payment front. He continues to claim the Saudi facility would offer pricing room as well. He may well know things; we don’t know yet. There could well be concessional oil in addition to deferred payments.

Regardless, if growth is the goal, don’t go overboard on criticizing the PL policy. It seems thought out for a change. Give growth a chance.