Explained: Why are fuel prices rising in India?

The oil disaster couldn’t have come at a worse time for the Modi authorities as its tax assortment has fallen in need of its 2020-2021 goal by Rs 5.2 lakh crore.

IMAGE: Congress employees pulli a automobile with ropes throughout a protest in opposition to hovering fuel prices in Agartala, February 17, 2021. Photograph: Papri Bhattacharjee/ANI Photo


On February 16, India’s main oil advertising firm — Indian Oil — posted a desk on its Web web site stating the fundamental worth of petrol and the taxes levied on them.

Taken with the taxes and different fees, retail customers in Delhi had been paying Rs 89.29 for petrol and Rs 95.75 in Mumbai.

In Sri Ganganagar, Rajasthan, the worth of petrol was Rs 99.87; thus, an finish person there was shelling out Rs 67.77 greater than the bottom worth listed by IOC on its Web web site.

As the worth of petrol touches Rs 100 and diesel Rs 90 throughout the nation, the query uppermost on everybody’s thoughts is: Why is the federal government not intervening and lowering the tax on fuel prices to profit the center class?

“Excise duty, that is cess which is imposed by the central government, is abnormally high on fuel. Prevailing international crude prices do not justify such a high retail price. It is only because of high duty from the central government that petrol price is touching Rs 100. It is entirely up to the central government to cut down the cess,” says economist Prasenjit Bose.

However, Prime Minister Narendra Damodardas Modi on February 17 put the blame on earlier governments (learn: United Progressive Alliance) for the rise in fuel prices, stating that they didn’t have the imaginative and prescient to cut back India’s dependence on vitality imports.

This week the crude oil barrel worth is ranging at round $63 plus.

It was round $42 in October 2020.

It means a rise of fifty per cent in worth per barrel in simply 4 months — clearly including to the Modi authorities’s income assortment worries.

The state of affairs worsens as Saudi Arabia has determined to chop its oil output whereas a snowstorm in the United States has halted manufacturing there, placing oil prices in the area of uncertainty.

“India has told OPEC countries to produce more to overcome the price rise crisis,” says Kshitij Purohit, product head, commodities and currencies, Capitalvia Global Research.

This week, Union Petroleum Minister Dharmendra Pradhan, whereas addressing the eleventh IEA IEF OPEC symposium on vitality outlook, urged OPEC nations to ease manufacturing cuts.

‘I’m interesting for alleviating of manufacturing cuts by the important thing oil exporting nations,’ Pradhan informed the symposium.

The oil disaster couldn’t have come at a worse time for the Modi authorities as its tax assortment has fallen in need of its 2020-2021 goal by Rs 5.2 lakh crore.

Budget 2020-2021 had estimated Rs 24.2 lakh crore in gross tax assortment, whereas the precise realisation is predicted to be round Rs 19 lakh crore.

Asked whether or not the shortfall in income was forcing the federal government to mop up big taxes on petrol and diesel, economist Prasenjit Bose asks, “It is a soft option. Why can’t they increase corporate tax and introduce wealth tax?”

“Financial markets are doing well and wealth is increasing, so why not introduce wealth tax, rather than squeeze money from petroleum products, which is a disproportionate source of revenue mobilisation. This is unfair taxation,” Bose argues.

As the federal government appears helpless, Ppposition events are hell-bent on cornering the Modi authorities on the problem by stating protests and rallies throughout the nation.

D Okay Shivakumar, the Congress’s Karnataka unit president, tweeted:

‘Central tax on fuel. Congress govt in 2014: Petrol Rs 10.7, diesel Rs 4.9.

BJP Govt in 2021:& Petrol Rs 32.9, diesel: Rs 31.8.

Prices of important commodities is skyrocketing. This bankrupt Govt is managing solely by taking big loans & taxing fuel exorbitantly!’

“Tax policy should not be tinkered based on whether the prices of petroleum products are going up or down,” says Professor N R Bhanumurthy, National Institute of Public Finance and Policy. “The tax policy needs to be stable, otherwise the tax authorities will be working day in and day out tinkering at tax rates and margins.”

“Right now, we know that domestic price rise moves in tandem with international oil price. That is the expectation that has been formed and I don’t think one should disturb that. Having said that, one definitely understands that this falls under household budget but we cannot (&reduce tax) in a haphazard way,” Professor Bhanumurthy provides.

“One has to wait and watch how international oil prices move and accordingly take a call.”

Pointed out that in UPA rule oil prices had reached $140 a barrel however the home worth didn’t transcend Rs 70 a litre, not like now, Professor Bhanumurthy says, “That is very unfair logic. It means we have to go back to the old kind of mechanism where we know subsidies create negative incentives for consumers.”

“Moreover, diesel and petrol are not a part of the frequent man’s consumption basket. I do not suppose subsidies ought to be continued and given to shoppers who function vehicles. Why do you have to and me get subsidy on petrol? the professor asks.

“The Budget presented this month was growth-centric. And one of the best parts of the Budget was that there is a significant reduction in subsidies. That money has been spent on capital expenditure. Petroleum prices for obvious reasons should not become a part of the political discourse,” he says.

“In 2008 when crude oil price reached $147 a barrel the Indian rupee was at Rs 42 to a dollar. Now the Indian rupee is at Rs 75 plus,” says Kshitij Purohit. “The Indian rupee has also depreciated and that is why we are paying more money to buy oil.”

Asked how the top customers had been paying much less for petrol and diesel again then, Purohit explains, “What the UPA government did was they purchased oil from Iran and Iraq and in return we made payment in Indian bonds that were due for payment 10 years and 20 years later.”

“In 2016 we had to redeem the bonds and so made the payment in dollars. And that is the reason when Brent crude prices decreased we are unable to cut down the taxes on fuel and pass on the benefit to consumers.”

“Look at the level of corporate taxes that were collected during the UPA’s time as compared to GDP and look at what is happening today,” says Bose.

“In September 2019 an enormous amount of corporate tax was cut. You are cutting taxes for the rich and increasing taxes for essential commodities such as diesel which is used by farmers to run tractors and pumps. It is unfair.”

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