Fuel prices were today slashed for the twelfth straight day. Petrol price is cut by 24 paise to Rs 76.78 and diesel by 18 paise to Rs 68.10 in Delhi. In other metro cities, petrol is being sold at Rs 79.44 in Kolkata, down by 24 pasie; Rs 84.61 in Mumbai, down by 23 paise and Rs 79.69 in Chennai, cut by 26 paise. In last 12 days, the petrol price has come down by Rs 1.65 paise - in the national capital - from its record high of Rs 78.43 on May 29. Before slashing the prices, oil marketing companies had hiked the fuel cost for 16 consecutive days - from May 13 to May 29, petrol price was raised by Rs 3.8 and diesel by Rs 3.38 per litre.
Indian petroleum prices are determined by the cost of crude oil in international market. Last year, crude oil prices shot up after the organisation of oil exporting countries decided to withhold the excessive output, which had brought down the prices to the lowest in more than a decade. The countries slashed the overall fuel supply by about 1.8 million barrels per day that created the shortage of crude which in turn spiralled the prices.
However, it was reported, that the members from OPEC countries -- Saudi Arabia, the United Arab Emirates, Kuwait and Algeria -- this week met unofficially in Kuwait and agreed to lift the curb on crude supply. Following the report, the US crude prices on Monday touched its lowest level in nearly two months.
Earlier this week, industry body Assocham argued that reducing taxes is the best solution to check the spike in fuel prices which would also help India on the exports front. In a statement, Assocham Secretary General D S Rawat said that cutting down taxes will make India's exports competitive, bring down current account deficit and the country may also no longer see the rupee depreciating.
The chamber further suggested to the Centre to bring oil products within the ambit of the Goods and Services Tax (GST) so that India's fuel prices match international rates. "The prices then do not have to be administered by the government and people would treat oil as just another commodity which depends on international prices," Rawat said. He further said that higher oil prices significantly impact not just India's economy but household budgets as well as it leads to increase in cost of transportation and therefore impacts a lot of other products in the inflation basket.
Not only Assocham, but opposition parties too demanded for tax cut to provide some relief to the consumers. However, the market analysts believe that the Centre does not have enough space to cut excise duty as one rupee cut will result in Rs 13,000 crore loss for the government annually.
However, the states can cut VAT by up to Rs 2. According to a SBI report, the states can slash petrol price by Rs 2.65 per litre and diesel by Rs 2 a litre if they decide to forgo potential gains out of high crude oil prices. It said that the states earn an additional revenue of Rs 2,675 crore for every USD 1 per barrel increase in oil prices.
"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 per litre and diesel by Rs 2 per litre, if the entire revenue gain was to be neutralised," the report argued. Despite the room for tax cut on fuel, no BJP-ruled states have moved so far in that direction. Kerla is the only state that has cut the tax on petrol and diesel by Re 1.
Meanwhile, India's fuel demand in May went up by 3.4 per cent compared to the same month last year. According to the data from the Petroleum Planning and Analysis Cell, sales of petrol were up 2.0 per cent higher from a year earlier at 2.46 million tonnes.