May , 2020
Unprecedented hike in fuel prices leaves many questions unanswered
10:56 am

Aniket Panja

Everything seems to be going downhill during the lockdown. Everything except petrol and diesel prices in India. Even as international crude oil prices fell significantly due to the coronavirus pandemic, the central government seems to be reading the situation differently.

 The COVID-19 pandemic has already affected various sectors. Similarly, the price of crude oil has dropped sharply from $70 per barrel to $30 per barrel. It was expected that domestic petrol and diesel prices in India would also be cut down by at least Rs. 20 per litre. However, the government has increased its excise duty.

 The Central Board of Indirect Taxes and Customs decided to impose a special additional excise duty of Rs. 2 and road infrastructure tax of Rs. 8 on each litre of petrol sold along with Rs. 5 special additional excise duty and Rs. 8 road infrastructure tax for each litre of diesel. VAT on petrol and diesel has also been increased by Rs. 3.25 per litre for petrol and Rs. 2.50 per litre for diesel. This is the second time that the central government has decided to increase the excise duty on petrol and diesel since last March.

 The increase in price of petroleum products would automatically increase the prices of all essential goods.  Reacting strongly against the increase in prices, the Tamil Nadu Chamber of Commerce and Industry has condemned both the centre and the state government. The chamber has urged the authorities to consider the situation and bring down fuel prices immediately. It has also asked the government to bring all petroleum products within the ambit of GST.

 The retail price of petrol and diesel is now three times their basic refining cost. Following the centre's increase in its excise duty and road cess on petrol and diesel by Rs. 10 and Rs. 13 per litre respectively, the state governments too were forced to hike their sales taxes to cover their resources.

 Excluding excise duty and VAT, a litre of petrol should now cost Rs. 21.84 and a litre of diesel should cost Rs. 21.30. The excise duty on one litre of petrol is now Rs. 32.98 and the inbuild VAT in the retail price of petrol is Rs. 16.44. Similarly, a litre of diesel has Rs. 31.83 as excise duty and Rs. 16.26 as VAT. India now has the unenviable top spot when it comes to taxes on petrol and diesel. After the fresh hike, the excise duty on both petrol and diesel is now slightly above 69%. Italy claims the second spot with 64% taxes on retail fuel prices. France and Germany charge excise duty at 63% while it is 62.5% in Britain, 53% in Spain, 47% in Japan, 33% in Canada and 19% in the US.

 The government is obviously concerned about the state of the economy which was not doing well before the coronavirus outbreak. There were plans to make India a $5 trillion economy which has clearly been put on hold. Instead, the authorities are under mounting pressure to formulate an exit strategy and the hike in prices seems to be a step in that direction.

 Getting the industry and economy back on its feet is the primary concern at the moment. Therefore, the plan should ideally be to use the revenues generated from petrol and diesel for infrastructure and other developmental projects. It is estimated that the union government could gain close to Rs. 1.6 lakh crores due to the additional revenues from the newly implemented taxes and duties. What remains to be seen is how far these measures are successful in managing to normalise the situation after the lockdown is lifted and how this excess revenue is utilised.

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