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How Punjab is caught between politics and economics of petrol, diesel prices

On Thursday, union Finance Minister announced the decision to cut excise duty on both petrol and diesel by Rs 1.5 a litre and further asked oil marketing companies to reduce the price by Rs 1.

twitter-logo Anilesh S Mahajan   New Delhi     Last Updated: October 8, 2018  | 18:08 IST
How Punjab is caught between politics and economics of petrol, diesel prices

After spending Friday with the officials from the revenue department, at state's capital Chandigarh, Punjab chief minister Amarinder Singh has called them to the national capital Delhi to help him seek solutions. During the weekend, these officials were asked to do a comparative study of the fuel prices and the impact on the revenues of the state, before the chief minister can take the final call. He also received a presentation from the state's finance minister, Manpreet Badal on the impact.

Apart from meeting these officials, Singh is expected to meet senior leadership of his political party Indian National Congress to seek the political solution as well. He foresees a major crisis of diversion of revenues, if state persists with the price difference. Similarly, Delhi's CM Arvind Kejriwal, too, is worried about the diversion of revenues. Both these states, along with the non-NDA states in South, Kerala, Karnataka, Tamil Nadu and in east Odisha and West Bengal, dissented the call from the union finance minister Arun Jaitley to forgo Rs 2.5 a litre from state government's VAT collection on the sale of petrol and diesel.

Following the cues, the NDA ruled states followed suit. On Thursday, union Finance Minister announced the decision to cut excise duty on both petrol and diesel by Rs 1.5 a litre and further asked oil marketing companies to reduce the price by Rs 1. These two states are surrounded by BJP governed states, where the fuel rates are now lower and steep differences in taxes could lead to higher diversion of revenues to these states. The southern and eastern states governed by the opposition still can afford the dissent.

On Saturday, five states - Madhya Pradesh, Chhattisgarh, Rajasthan, Telengana, Mizoram - went for polls for their respective state assemblies. At present, Punjab and Puducherry are the only Congress ruled states (Mizoram went for polls and Karnataka party is junior partner to JDS), and will require dissenting Punjab to develop political discourse. The opposition's governments are blaming the centre for playing 'smart', by cutting excise duty and not additional excise and special excise, where states don't have the share under devolution of funds. This means, with Rs 1.5 a litre cut the states will not get their Rs 0.67 a litre from centre under the 42 per cent formula accepted for devolution offunds. Plus Rs 1 cut by OMCs means further reduction in the VAT collection. But FM Jaitley doesn't buy this argument. He said that the states charge VAT ad valorem and their collection increase with hike in the prices; unlike the centre's share where the excise is fixed.

In this poll season the debate will go on, but economically the dissent is costly for both Punjab as well as Delhi, where the diversion of revenues because of price difference is a bigger risk. 

For instance: the prices of petrol and diesel are Rs 89.70 and Rs 75.46, respectively in Punjab and in neighbouring Haryana it is roughly priced at Rs 79 and Rs 71 and in Himachal these products are priced at 79.5 and Rs 70, respectively. Punjab is relatively small state, and the centres of major economic activities; Jalandhar, Ludhiana, Pathankot, Patiala, Bathinda and Mohali are very much nearer to state borders. Along with this, the fear of strengthening of the 'oil mafia' also looms large. 

Captain Singh is worried, though the Delhi Chief Minister Kejriwal and his finance minister Manish Sisodia haven't shown any urgency. The bureaucrats in Delhi say, both these leaders believe that the relief is temporary and the prices of petrol and diesel will increase in days to come. But the petrol and diesel dealers in the state believe a large diversion of revenues and loss of business. Separately, they were lobbying with the Delhi government to cut the VAT by 5 per cent to increase the revenues from neighbouring states, but now the situation for them has become worrisome. Both Kejriwal and Sisodia have asked the centre to take a larger cut.

Singh in Punjab still has to work out the loan wavier of the farmers, as committed in his election manifesto. Plus he may have to spend more to motivate the farmers not to burn the paddy straw after the rabi harvest. For last one decade, since the taxes collection exports fizzled out of the state's kitty, the VAT collection on fuel remained a money spinner and has highest slab for VAT in the northern region at 34.86 per cent and 16.62 per cent ondiesel. It grew from Rs 4,179 crore in 2014-15 to Rs 5,658 crore in 2017-18.

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