Petrol and diesel prices rise may fuel Modi government's biggest heartburn yet

Rajeev Sharma
Rajeev SharmaMay 23, 2018 | 12:51

Petrol and diesel prices rise may fuel Modi government's biggest heartburn yet

An year before the 2014 general elections, the resurgent Bharatiya Janata Party (BJP) had myriad reasons to be happy as social media, which was getting increasingly powerful, took the hapless Manmohan Singh government to the cleaners.


One of the favourite hit-Congress themes of the BJP supporters on social media at the time was the coinage of a new greeting: "May your happiness increase like petrol prices, may your sorrow fall like the Indian rupee." Top leadership of the BJP then, including Narendra Modi, took potshots at the Manmohan Singh government over fuel prices.


The wheel has come full circle now. Now it's the turn of Prime Minister Narendra Modi to be at the receiving end as retail prices of petrol and diesel are at the highest level ever. On May 20, petrol was selling in Mumbai at Rs 84 per litre, the commodity's highest ever price in the country. On May 22, petrol and diesel prices were raised across the country for the ninth consecutive day as oil marketing companies (OMCs) relentlessly kept on passing on the increase in international fuel prices to the consumers after a 19-day price hike freeze apparently for the Karnataka polls.

This brings us to the crucial question about the efficacy of the policy of fuel price deregulation, introduced by the Manmohan Singh government in June 2010, which has been repeatedly used by the Modi government for refusing to intervene and order excise duty cuts in prices of petrol and diesel.

The only logical conclusion one can derive from this is that the government intervenes only when it wishes to and when it's politically expedient, like it was at the time of Karnataka elections. Another logical inference is that the government will continue to look the other way (or indulge in some window dressing by ordering a minor duty cut) because there are no elections lined up till the year-end. After all, the Modi government has to build up its war chest for the all-important 2019 general elections.


As per the revenue collection projections of the Union finance ministry, the government hopes to generate over Rs 2.579 lakh crore by the end of this fiscal by levying taxes on petroleum products alone, a massive jump from the gross revenue collection of Rs 88,600 crore in 2013-14.


Modi government's accountability is far greater than the previous UPA government because during the fag end of Manmohan Singh's second term, the international oil prices had touched $150 a barrel, almost double than today's prices. If you consider the example of petrol and diesel prices in Delhi today - Rs 76 and Rs 68.08 per litre respectively, the highest recorded ever - petrol prices had last reached the Rs 76 per litre mark on September 14, 2013, when crude oil prices were hovering around $108-$115 per barrel.

This makes it clear that the spurt in global crude prices is not the only reason for domestic retail prices to touch record highs. The government's hard-nosed policy to keep the tax component on petroleum products high is the real reason. Since 2014, the Modi government has increased excise duty on petrol and diesel nine times and the total quantum of excise duty raised during this period was Rs 11.77 per litre on petrol and Rs 13.47 per litre on diesel.


The only instance when the Modi government had cut excise duty on petrol and diesel by Rs 2 per litre was in October 2017 at a time when Uttar Pradesh Assembly polls were round the corner.

As per Indian Oil Corporation's price build-up data for fuels, the total tax component charged from consumers stands at 52 per cent for petrol and 42 per cent for diesel. India is the most taxed nation in terms of petroleum products among all South Asian nations.

This brings us to another crucial question: Why hasn't the government included petrol and diesel in the Goods and Services Tax (GST) regime? The reason is obvious. Under GST, the maximum tax slab is that of 28 per cent whereas the government is collecting much higher taxes by keeping petrol and diesel out of GST. This obviously puts a question mark on government's intentions.


Since the government continues to keep petrol and diesel out of GST's purview, a petition has been filed before the Madurai bench of Madras High Court, to include petrol and diesel under GST. If the government were to do this then at the maximum tax slab of 28 per cent, the per litre retail prices of petrol and diesel would come down to Rs 43 and Rs 37, respectively.

The government's refusal to provide any relief to the common man has invited sharp attack from the Opposition as well as the common man, which is reflected in the social media. #FuelLootBySuitBoot handle trended on Twitter throughout yesterday, May 22. Sample a few tweets, some humorous, some satirical, some jocular but all of them hard-hitting:

Rising fuel prices are a major headache for the Modi government. Its political fallout could be as grave as that of the government's lacklustre performance in terms of generation of jobs and virtually all other sectors.

The worse is, however, yet to come since international oil prices are likely to rise further. As per calculations done by the prime minister's chief economic adviser, Arvind Subramanian, in his latest economic survey, every $10/barrel rise in crude prices slows growth by 0.2-0.3 percentage points and fuels Wholesale Price Index (WPI) inflation by 1.7 per cent.

And as per today's prices, not taking into account further increase in international crude oil prices, according to the oil and petroleum ministry figures, India may have to shell out $30 billion more to buy the same quantity of crude oil as last year.

India had spent $87.72 billion to buy oil from the international market in the last fiscal, the bulkiest item on India's import bill of $417.57 billion.

This makes Modi's task all the more complicated, challenging and politically more risky. Petrol/diesel prices affect the common man directly. The Modi dispensation has to act fast. Time is at a premium. Failure to do so will severely dent Modi's Mission 2019.

Last updated: May 23, 2018 | 21:28
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