THE retail prices of petrol and diesel have reached a new high in the past few days.  The price of petrol per litre is ranging from Rs 70 to 79 in various cities, making it an average of Rs 74 per litre.  The price of diesel is around Rs 61-62 per litre.  Ever since the daily price revision was introduced, the price of petrol has gone up by over Rs 6.17 per litre since July 1.

As is well-known, India has to import 85 per cent of its oil requirements.  So the international price of crude oil has a direct bearing on the price of petrol and diesel at home.  The international price of crude oil has fallen drastically in the past three years.  In September 2012, the price of crude oil was $ 112 per barrel.  At that time, the price of petrol for a consumer in India was Rs 73 per litre.  Now the international price of crude oil is $ 52 per barrel, yet the domestic price of petrol is Rs 74 per litre. 

So why are the prices high and the benefits of the lower imported price of crude oil not being passed on to the consumer?  This is due to the high taxes levied on petroleum products.  The Modi government has hiked excise duty on petrol and diesel eleven times since November 2014. This amounts to an additional Rs 12 per litre of petrol and Rs 13 per litre of diesel.  Apart from that, there are state level taxes.

The central government has siphoned off all the reduction in crude oil prices through increased excise duty and VAT. The government’s excise duty collection during the period 2014-17 shot up from Rs 99,184 crore to Rs 2,42,691 crore. 

This form of indirect taxes burden the ordinary people. The increase in diesel prices affect the farmers and small entrepreneurs; the increase in petrol prices affect those using public and private transport.

The government claims that the revenue generated from the increased taxes are essential for infrastructure and welfare expenditure. However, the way the government has spent these windfall gains is questionable. There are no visible signs of improvement in the urban and rural infrastructure and there is a steady deterioration in the basic services including the public educational and health systems.

Instead, if the excise duties had not been increased so sharply, disposable income would have increased in the hands of the consumers, which would have led to an increase in the purchasing power of the people and revived demand for a whole host of goods.  This, in turn, would have resulted in a boost for revenue. 

There is no argument that the entire reduction in the international price of crude oil should be passed on to the consumers. The government has to retain a proportion of it as revenue. But it should be earmarked for specific expenditures and not go into the Consolidated Fund where there is no accountability on how it is spent. 

Having said that, there is no justification whatsoever for the steep and successive hike in excise duties.  There has to be a substantial cut in the duties on petrol and diesel and the people must get the benefit of the reduced prices. 

(September 13, 2017)