- Petrol, diesel prices have increased for 12 days in a row
- Govt had raised excise duties on petrol and diesel on 6 May
- Prices of crude oil (Indian basket) came crushing down from $70 in January to $17 in April.
- Average crude prices have sharply fallen from $84 in 2014-15 to $60 in 2019-20
- Collection from excise duty on petroleum products rose from Rs 99,000 crore in 2014-15 to Rs 2.23 lakh crore in 2019-20
The reason petrol and diesel prices are rising is because the government revenue from other sources have plummeted due to coronavirus lockdown in recent months.
Petrol prices have gone up by Rs 6.55 and diesel prices by Rs 7.04 (prices in New Delhi) since 7 June. Large part of fuel prices in India constitute excise duty imposed by the government.
The government raised excise duty on petrol by Rs 10, and on diesel by Rs 13 a litre on 6 May 2020 as Indian basket of the crude oil prices came crushing down from $70 a barrel in January this year to below $20 by the end of April.
The excise duty on branded petrol is Rs 44.16 a litre while on branded high speed diesel it is Rs 34.19 a litre. Apart from excise duty, state VAT and customs duties are also levied on petroleum products.
Low crude oil prices have been beneficial for the government as despite 70% drop in crude prices, retail petrol and diesel prices saw marginal drop of 10% between 1 January and 4 May. Afterwards, the prices started going up, and in the past 12 days petrol and diesels prices have continuously risen since crude prices (Indian basket) have doubled to $40 a barrel from first week of May.
This gives the government a good opportunity to mop up tax revenue through petroleum products even as other sources of tax revenues (GST and direct taxes) see a drastic fall due to coronavirus lockdown. CGST collection in April 2020 was a platry Rs 6,000 crore compared to Rs 47,000 crore a year ago.
According to Subhash Chandra Garg, former secretary, department of economic affairs in the finance ministry, the government seems keen to expand the petroleum revenue as much as possible.
"When the government raised the excise duties, the crude prices were very low, and the petroleum companies were making some profit. While it is good not to leave so much of profit in the hands of oil companies, and it is also not good to allow petroleum prices to be volatile, therefore you take the decrease in crude prices as revenue," he says.
However, he says challenge would come when the crude oil prices start rising. "Once the crude oil prices went beyond $34-35, the government had to raise the price of petroleum products. In the last few days, the petrol and diesel prices have been raised, and now they have reached to the levels which are highest ever. Now the government is in a difficult spot. Should you allow the prices to be raised beyond this level, which looks very ironical when global prices are half," he says.
In April, the average crude oil price was $19.90 a barrel, while in May it was $30.60.
The average crude oil prices have come down sharply from 2014-15 to 2019-20. In 2014-15, the average crude price was $84.16, which came crushing down to $46.17 the next year. In 2019-20, the average price was $60.47. During the same period, collection from excise duty on petroleum products have more than doubled from Rs 99,000 crore in 2014-15 to Rs 2.23 lakh crore in 2019-20.
However, it remains to be seen if the government reaped the benefits of an increase in excise duties on petrol and diesel in May as lockdown restricted most economic activities and movement of people remain.
In June, when the government began removal of restrictions, crude prices crossed $40. It remains to be seen for how long the government can hold on to higher levels of excise duties on petrol and diesel.