June 21, 2020

Crushing Burden of Petrol-Diesel Price Hikes

THE petrol and diesel prices have been hiked daily for eleven successive days from June 7 to 17.  By these hikes, the retail price of petrol has increased by Rs 6.02 per litre and diesel by Rs 6.40 per litre. 

These daily hikes by the oil companies, at the behest of the government, have come at a time when the economy is contracting and demand is at an all-time low with unprecedented levels of unemployment and loss of incomes and livelihoods.

The Modi government’s policy of making petrol and diesel costlier is actually taking away money from people’s hands at a time when they desperately need it. The arbitrary manner in which the Modi government has intervened in the pricing policy of petroleum products reveals the same signature pattern of authoritarianism which has been displayed so nakedly during the pandemic and the lockdown.

The government decided on May 5 to impose a whopping increase in central excise and other levies on petroleum products.  For petrol, the increased tax amounted to Rs 10 per litre and for diesel, Rs 13 per litre.  A bulk of this was in the form of increase in road cess.  Earlier, on March 14, there had been an increase in excise duty and road cess amounting to Rs 3 per litre for petrol and diesel. Together these hikes in taxes will garner the centre an additional revenue of Rs 2 lakh crore. 

With the second revision in excise duty and other levies, the government will be collecting 260 per cent tax on the base price of petrol and 256 per cent as tax on the base price of diesel.  These hikes in central taxes took place at a time when crude oil prices internationally were at a record low.  In early May, it was around $28 a barrel having gone below $20 in April. The tax hikes were instituted to siphon off the benefits the oil companies got from the fall in prices and to prevent the passing down of the lower prices to the consumers.

At this juncture, the centre indulged in a sleight of hand.  It said that the daily revision of retail prices will be put on hold during the lockdown.   By this, it prevented the oil companies from passing on the benefit of the declining international oil prices to the people.  When the centre announced that the increase in central taxes would not be passed on to the consumers, the oil companies followed because there was sufficient cushion for it to pay the increased taxes as it was importing crude oil at very low prices while maintaining the high retail prices. 

The moment the lockdown was lifted in June, on the plea that the crude oil prices are rising again, the daily price hikes were begun.  At present, the fuel prices are at highest level since October 2018.  At that time, the international crude oil price was an average $80 per barrel; now it is              $35 to 36 per barrel. These steps have made the policy of deregulation of oil prices farcical.

When the global oil prices were at a low level, instead of rationalising the taxes, the government went ahead with an exorbitant hike. The continuous increase in fuel prices will further reduce the amount of money that the people will have to spend, at a time when demand is extremely low. 

The increase in road cess and special excise duty means that the states will not get a share of the increased taxes. This is at a time when the states are struggling with their finances. Following the centre’s move, some of them increased VAT and other levies on petrol and diesel.  This will only burden the people more during the pandemic.

The so-called stimulus package announced by the government has proved to be a hollow one with no substantial funds being provided for putting money into the hands of the people and to stimulate demand.  The BJP government stubbornly adheres to fiscal conservatism in order not to offend international finance capital. In the absence of any effective transfer of money into the hands of the people who most need it, the hike in petrol and diesel prices will prove to be a pernicious burden on the people.

The fuel prices will lead to an increase in commodity prices in general.  Goods transported by trucks and lorries are going to cost more.  Farmers will see a rise in input costs which will affect their incomes; the MSME sector, whose revival is crucial for the economy, will be adversely hit; public transport will become more costly. An auto-rickshaw driver loses Rs 30 to 40 daily earnings due to an increase of 50 paise per litre of fuel.

The government has adopted this anti-people measure in order to garner revenue at a time when its revenues are falling steeply.  However, this measure will end up weakening the economic revival itself and that in turn will hamper the revival of revenues for the government.  If the government had wanted to urgently augment its revenues, it should have imposed a 2 per cent wealth tax on the superrich and a 33 per cent inheritance tax on the wealth they bequeath.  This would have served the purpose of increasing revenue without snatching money away from the people.

In the ongoing struggle to get the government to take the necessary and immediate measures to render relief to the people, the demand to roll back the excise and central levies on petrol and diesel must have an important place. 
(June 17, 2020)