Petrol prices have surged to a four-year high of Rs 73.83 a litre in Delhi on Monday, while the diesel rate soared to an all-time high of Rs 64.69, renewing calls for the government to cut excise tax rates on the fuels. Fuel rates that are revised every morning at 6 am, saw an increase of 10-11 paise on petrol and diesel increased by 11-12 paise since yesterday.
In Mumbai a litre of petrol now costs Rs 81.69, while it is Rs 76.54 in Kolkata, Rs 76.59 in Chennai, Rs 75 in Bengaluru, and Rs 78.19 in Hyderabad. For a litre of diesel, consumers in Kolkata will have to shell out Rs 67.38, while consumers will have to pay Rs 68.89 in Mumbai, Rs 68.24 in Chennai, Rs 65.78 in Bengaluru, and Rs 70.28 in Hyderabad.
The last time petrol rate was higher was in September 2014, when it touched Rs 76.06 in Delhi. The previous high for diesel price was on February 7, 2018, when it hit Rs 64.22. Earlier this year, oil ministry sought a reduction in excise duty on petrol and diesel to cushion the impact of rising international oil rates.
However, the finance ministry has not reduced the rates. While retail inflation has been cooling down, the hike in fuel rates is likely to reverse that trend through a cost-push impact. It will affect inflation directly because commuters will have to pay more for petrol.
There will also be an indirect impact as cost of transporting goods will go up because of higher diesel prices. The surge in petrol prices also comes close to Reserve Bank of India's monetary policy review meeting. The fuel price hike will reduce headroom for the RBI to cut interest rates to spur economic growth.
The RBI monetary policy committee will begin their meeting on April 4. India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half of the pump rates. Finance minister Arun Jaitley raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.
Following that excise duty reduction, the Centre had asked states to also lower VAT but just four of them --Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh -- reduced rates while others, including BJP-ruled ones, did not follow through.
Also between November, 2014 and Jan, 2016 when global crude prices were falling, Centre raised excise duty on fuel 9 times to take away gains arising from plummeting global oil prices. This raised Centre's revenue from fuel from Rs 99,000 crore to Rs 2,40,000 crore per annum. Taxes by Centre and states account for more than half of the price consumer pays for petrol and diesel. In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months.
The central government had, however, cut excise duty by Rs 2 per litre in October 2017, when petrol price reached Rs 70.88 per litre in Delhi and diesel Rs 59.14. Because of the reduction in excise duty, diesel prices had on October 4, 2017 come down to Rs 56.89 per litre and petrol to Rs 68.38 per litre. The October 2017 excise duty cut cost the government Rs 26,000 crore in annual revenue and about Rs 13,000 crore during the remaining part of the current fiscal year.
In 2016-17, Centre earned Rs 2.42 lakh crore through excise and states Rs 1.66 lakh crore through VAT. That's a total of over Rs 4 lakh crore.
International crude price has jumped from $ 48 per barrel in June 2017 to $ 69.41 per barrel now pushing domestic fuel prices higher. Centre and states are finding it hard to cut excise and VAT as it will reduce their revenue.
Finance Minister Arun Jaitley had said in February that the states are not in favour of bringing in petrol and diesel under GST. "So far, the mood of states (most of the states) is not in favour of including it at the moment (in GST). But I am sure as the GST experience moves on, natural gas, real estate - these are areas which are to be brought in and then probably at some stage we will keep trying for petrol, diesel and potable alcohol," Jaitley said.
It is, however, hard to believe that BJP and associates which now rule 21 states in India are unable to persuade them to cut VAT. Looking as how fuel prices are hiking, Centre and states are equally responsible for plight of the consumer in India.