CENTRE for POLICY ANALYSIS

CENTRE for POLICY ANALYSIS

“Social progress can be measured by the social position of the female sex” - Karl Marx

ARTICLE


Economy Crumbles as Fuel Prices Skyrocket, Household Budgets Hit


India is witnessing a surge in the prices of diesel and petrol like never before. The hike of 48 paise a litre for petrol and 47 paise for diesel is the steepest increase since the daily price revision came into effect over 14 months ago. Propelled by a rise in global crude oil prices and a weakening rupee, the price of petrol in Delhi is now touching Rs 80 while diesel has crossed the Rs 72 mark.

The prices being revised on a daily basis are wreaking havoc on the economy, causing the maximum damage to the already weakened sections-- farmers, small contractors, truckers and ordinary people, and spurring a call for Bharat Bandh on September 10 by the Left parties, joined in by other opposition parties, including the Congress. A statement by the Centre of Indian Trade Unions called upon all its members to back the Bandh call against the "unprecedented economic burden being imposed by the BJP-led Modi government on the people".

Meanwhile, transporters are gearing up to put pressure on the government to reverse its fuel tax policy.  

"60% of our work is heavily reliant on fuel, because of government’s taxation policy, we are being forced to live in losses." says Naveen Kumar Gupta, Secretary General of the All India Motor Transport  Congress (AIMTC).

The transporters' body said its units had decided to stage protests across districts. Demanding an immediate rollback of the increase in prices, the AIMTC said it was hitting them adversely while the Centre has become a mute spectator.  

The current price hike across the country, is a result of multiple factors  including the international geopolitical situation, a diving rupee, but most importantly, the government's unrelenting tax regime and the silence of its ministers over the issue.

Finance Minister Arun Jaitley remained evasive on the issue of cutting down excise duty to cushion the spiralling petrol and diesel prices, adding that international oil prices are volatile and have not shown any linear movement. Union Petroleum Minister Dharmendra Pradhan also attributed the hike in fuel prices mainly to rupee depreciation.  

High Excise Duty  

However, many feel that by attributing the price hike only on international factors must be taken with a pinch of salt, the BJP government is trying to shrug away its own responsibility of bringing fuel prices under the ambit of the Goods and the Services Tax (GST). Unlike the previous governments, the BJP has also failed to cut excise duty whenever international oil prices shoot up.

Almost half of the retail selling price of the two fuels is made up of central and state taxes. The central government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by 13.47 a litre in nine installments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then it cut the tax just once in October last year by Rs 2 a litre. This led to its excise collections from petro goods more than doubling in last four years - from Rs 99,184 crore in 2014-15 to Rs 2,29,019 crore in 2017-18. It is clear that  the prime reason why petrol and diesel are expensive is because of the central and state taxes. These taxes are a huge revenue generator for the government, and the current regime is using these as milch cows to garner greater revenue while the common people suffer.

As per the Finance Ministry's revenue collection estimates, the government expects to earn over Rs 2.58 lakh crore by imposing taxes on petroleum products by the end of this fiscal. This is a huge jump from the gross revenue collection of ~Rs88,600 crore in 2013-14 when the BJP took office. Since May 2014,the excise duty on petrol has seen a skyrocketing increase of 211%, while the duty on diesel has seen an increase of 443%.  

The cascading effect that this hike has is considered strong enough to fuel an overall price hike and destabilise the economy. Further, it may also affect the stock markets negatively, especially those shares that are dependent on oil and gas in some way or the other.

AIMTC's Gupta adds, "If they wish they can make our lives easier, currently the small farmers are failing to cope with the price revisions every day, we are heavily reliant on this fuel, the changing prices not being put under a uniform ambit are hurting us the most, there has to be a rollback urgently." 

Currently the revision of the rates is notified every morning at 6 am. Earlier, petrol prices were revised every fortnight, meaning that unlike now, the prices changed on the 1st and 16th of every month. However, on June 16, 2017, a new scheme was implemented under which prices were to be revised every morning This shift from administrative price mechanism (APM) to dynamic pricing was done to ensure that the benefit of the smallest change in international oil prices can be put into effect by dealers.

While global crude prices continue to be under pressure, an RTI reply from the government-owned Mangalore Refinery and Petrochemicals Limited, claims that India is exporting refined petrol to 15 nations at Rs 34 per litre while refined diesel is exported to 29 countries at Rs 37 per litre, as per the information provided.It is being alleged that the government has levied high taxes on petroleum products making it a prized commodity for domestic consumers while the same is exported at a much cheaper cost. It also makes it clear that it is only due to the taxes levied by the Centre and the additional value added tax by the states that the fuel is becoming a priced commodity for domestic users.

   

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