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Can there be a long-term solution to rising fuel prices?

Here are some of the options before the government to rein in rising fuel prices.

twitter-logoBusinessToday.In | May 24, 2018 | Updated 18:23 IST
Can there be a long-term solution to rising fuel prices?

Faced with an unrelenting rise in global crude oil prices, the government has said it is looking for a long-term solution which will address not just the present volatility but also take care of the unnecessary ambiguity arising out of frequent ups and downs in fuel prices.

What this long-term policy would look like is anybody's guess. But there are a few takeaways from Law Minister Ravi Shankar Prasad's press conference yesterday where he spoke about why government was reluctant in taking some ad-hoc measures to mollify the public.

Prasad had indicated that the government may dump the current system of daily revision in petrol and diesel prices to shield consumers from the volatility in global markets and go in for a new policy which takes a long-term view. In June last year, Prime Minister Narendra Modi-led BJP government had junked a 15-year-old practice of revising rates every fortnight.

Here are some of the options before the government to bring down fuel prices:

Bringing petrol and diesel under GST

If petrol is taxed at 12 per cent GST rate, then the retail price of petrol would be around Rs 44.97. Under 18 per cent tax slab, petrol would cost Rs 47.17. And, under the highest tax bracket of 28 per cent, one litre of petrol would cost only Rs 50.87.

Maharashtra CM Devendra Fadnavis on Thursday said that if petrol and diesel can be brought under GST, rates will come down. "Once petrol and diesel are brought under the ambit of GST, its threshold will change, because, right now, taxes upon taxes are levied which increases rates. GST will ensure a single tax," Fadnavis said.  

While most of the states have not given their consent, Fadnavis added that Maharashtra has already agreed to bringing fuel under GST.

Passing on the burden to ONGC

The government could also bring back the under-recovery sharing system in which ONGC could be asked to sell its crude oil at below the international prices by capping the price at, say, $70 for the entire fiscal year.

ONGC has signed the Crude Oil Sales Agreement with several oil refining-cum-marketing companies like BPCL, HPCL and IOCL, among others, and supplies an estimated 20 per cent of the country's total crude oil requirement to them.

This is not the first time that the PSU will be asked to take a hit. ONGC and OIL had paid as much as 40 per cent of the under-recoveries arising from fuel retailers selling petrol, diesel, LPG and kerosene at a government-mandated price that was way lower than actual cost. And they bore the burden for more than 13 years till the subsidy sharing ended in June 2015, after global oil prices started plummeting.

Cutting excise duty

Since the excise duty on petrol was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre ever since Prime Minister Narendra Modi-led BJP government came to power in 2014. The low hanging fruit seems to be the withdrawal of this excise duty.

While the government had cut the central excise duty by Rs 2 pr litre after moving to daily revision of prices, there is still scope for a Rs 9 excise duty cut on petrol if the Centre were to go back to the tax levies charged in 2014.

Fadnavis added that Maharashtra has already given its consent for it and other states


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