Fuel prices are on a continuous rise with petrol today up by 16 paisa to Rs 78.43 and diesel by 14 paisa to Rs 69.31 in Delhi. Every passing day the fuel prices are making new highs not only in Delhi but in other metro cities too. In Mumbai, petrol prices today touched Rs 86.24, up by 16 paisa. In other two metro cities, petrol is being sold at Rs 81.06 in Kolkata and Rs 81.43 in Chennai. This is the 16th hike in a row after Karnataka Assembly elections held earlier this month.
Petroleum companies say that the prices of petrol and diesel are rising due to spike in international crude oil and that is something they can't control. Hindustan Petroleum Chairman and MD Mukesh Kumar Surana recently said that the oil marketing companies operate on a thin margin and they cannot do much if the crude oil prices go up. However, what is interesting to note that majority of the Petroleum firms have reported significant jump in their net profit.
India's top two oil producing companies - Indian Oil Corporation and Oil India Limited - both have recorded higher profit in January-March quarter. Last week, IOC reported 40.25 per cent jump in their year-on-year profit to Rs 5,218.10 crore for Q3. And yesterday, Oil India announced a 72.3 per cent growth in net profit at Rs 2,667.9 crore for the FY 2017-18.
The government is facing flak over its inability to come up with some formula to contain the prices. However, the options before the current dispensation are limited. The opposition is calling for excise duty cut on fuels which the Centre does not want to do for fear of slipping on fiscal deficit target. The Central government levies Rs 19.48 excise duty on a litre of petrol and Rs 15.33 on diesel. It will lose Rs 10,725 crore revenue for every Rs 1 cut in central excise duty.
The states are equally worried as they also do not want to take hit in their revenue. However, the State Bank of India in a report on Monday said that states can slash petrol price by Rs 2.65 per litre and diesel by Rs 2 a litre if they decide to forego potential additional gains out of high crude oil prices.
Explaining the reasoning, the SBI report said that the states earn an additional revenue of Rs 2,675 crore over and above the budget estimates for every USD 1/barrel increase in oil prices. And at the current crude prices, the states could have gained at least an additional Rs 18,728 crore of revenue in FY 2018-19, it said.
"Given that these revenue if foregone will not impact states fiscal position, we estimate that on an average, states can cut petrol prices by Rs 2.65/litre and diesel by Rs 2/litre, if the entire revenue gain was to be neutralised. This is the most plausible scenario under the current circumstances," the report argued. The state governments charge value added tax that varies from state to state.
Last week, it was reported that the government may impose a windfall tax on oil producers like ONGC as part of a permanent solution to rising prices of petrol and diesel. The tax may come in form of a cess and expected to kick in the moment oil prices cross USD 70 per barrel.
Once it's effective, the oil producers, who get paid international rates for the oil they produce from domestic fields, would have to part with any revenue they earn from prices crossing USD 70 per barrel mark. And revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels.
Meanwhile, CNG price too was hiked today by Rs 1.36 per kg in Delhi after input raw material got costlier because of rupee depreciation and rise in natural gas price.
(With inputs from PTI)