Petrol and diesel price cut shows government is taking note of rising public anger

The excise duty on fuels has been cut by Rs 2 per litre, but is it enough to spur growth?

 |  5-minute read |   04-10-2017
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The government has cut basic excise duty on petrol and diesel by Rs 2 per litre, with effect from October 4, 2017, after an outcry over hiked fuel prices despite the low global rate of crude oil. The Opposition, as well as the social media, had been awash with angry sentiments on the fuel price hike, which, along with woes induced by GST and demonetisation, has affected the ordinary Indian on the streets deeply. The rising public anger has finally led the government to take action and bring down the prices by Rs 2 per litre, taking a “hit of Rs 26,000 crore in tax revenue”, according to reports.

The wholesale inflation had risen to 3.44 per cent in August 2017, compared to 1.88 per cent in July, because of high fuel prices. The government had earlier tried justifying the high price of petrol and diesel as a matter of “nation-building” and funding of infra projects.

As a report in Mint notes, “On Monday, the petrol price in Delhi was Rs70.83 per litre, its highest since 16 January; diesel cost Rs59.07, also its highest since the same date.” This is in contravention of the worldwide trends which have seen a fall in global crude oil prices.

“Crude oil price, which had touched a monthly average of $123.6 a barrel in March 2012, eventually declined to $28.1 in January 2016. The Narendra Modi administration was able to take advantage of this fall in global price to decontrol the diesel price fully in October 2014. In September 2017, the global crude oil price averaged $54.52, according to information available with the Petroleum Planning and Analysis Cell, an arm of the oil ministry. The finance ministry attributed the current spike in domestic auto fuel prices to rising global prices and said the trend had started reflecting in inflation.”

While the government had its backers in its fuel price policy, there were those – chiefly the Opposition and left-leaning commentators in MSM and social media – who vehemently opposed the high and untenable fuel prices. A few business journalists were of the opinion that the Modi government was finally getting its math right by streaming tax revenues from fuel price hike and using it to inject public spending at a time of slow growth and low industrial output.

petrol-dd_100417042404.jpgIt’s important to balance the macroeconomic goals with the lived lives of ordinary Indians. Photo: PTI

When the global crude oil prices began to crash, the government kept the price either same or raised it, absorbing the increased revenue and paid for government expenditure, as well as tried meeting fiscal deficit targets. “The government's constant declaration that it has stabilised the foundering economy that it inherited is based almost entirely on its fuel price bonanza. High taxes on petrol are an important component of its macro-economic strategy,” an accurate assessment said.

However, when in Delhi the fuel price skyrocketed, there are those who pointed out the inconsistency in pricing, rightly so. Financial blogger James Wilson showed how Delhiites were being taxed more than double than what the central government would have as its share of excise duty, and were not even getting the benefits of high excise duty because Delhi doesn’t have full statehood to entitle it for a share of the revenue pie.

Evidently, the Centre has been caught on the wrong foot because of its own need to appear “populist” during election years. While there are those who believe that India should be placing a higher tax on fossil fuels to help the economy ease out of carbon-heavy fuels and migrate to renewable energy, the burden of that “nation-building” cannot be expected to be shouldered by the poor and the middle classes of the country, while the rich get hefty tax breaks.

The reports have said how the government will take a hit of Rs 26,000 overall and Rs 13,000 crore in the remaining part of the current fiscal year, as a result of the excise duty cut in petrol and diesel. However, we need to ask if the benefits of higher taxes on fuels were really going to the consumers?

As the Economic Times report notes: “In August in Delhi, retail selling price of petrol of Rs 70.48 per litre included central taxes of Rs 22.04 and state taxes of Rs 14.98. For diesel, the selling price of Rs 58.84 per litre contained central taxes of Rs 17.89 and state taxes of Rs 8.69.” The domestic natural gas prices have also risen by 17 per cent from October 2016-March 2017, and would “benefit the state-run ONGC”, the major supplier in India, but who would ultimately get the benefits from raised fuel prices?

A report in the financial portal Moneycontrol.com claims that the government is mulling a price cut of Rs 5 per litre in petrol and diesel: “An official said the Centre expect states to reduce VAT on petrol and diesel. It has also asked oil marketing companies to review petrol and diesel prices. States are likely to cut VAT by Rs 2 per litre while OMCs are likely to cut prices by Rs 1 per litre.

There is a need to reduce petrol and diesel prices by Rs 4-5 per litre, the official said. "Rs 65 per litre is an acceptable retail selling price for petrol,’ the official added. Government officials indicate that a price cut of Rs 5 per litre on petrol and diesel is likely."

Macroeconomic strategies need to sync with the country’s common citizens, particularly the bottom 90 per cent who constitute the middle and the poorer classes. Fuel price hike would have been a worthwhile strategy, had there been monetary equality in the country, and had it not impacted the majority adversely, throwing their daily life and expenditure out of whack. As India earns the sobriquet “plutocracy” from conscientious observers, it’s important to balance the macroeconomic goals with the lived lives of ordinary Indians.

Also read: Modi government has got carried away by its make-believe growth data

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