Govt keeping fuel costs high artificially

The relentless increase in the prices of petrol and diesel has invited criticism and protests all over the country. The prices have reached a three-year high now, although international crude prices are today at almost exactly half what they were when the Modi government took the reins. The average price of crude has dropped from about $108 in May 2014 to about $54 now. The retail domestic prices have not reflected this, but have actually increased from the Rs 60-65 per litre range in early 2016 to the Rs 70-75 range today. The prices have gone up by over 7% after the introduction of the daily price change regime on June 16. In the last 10 days alone, petrol prices increased by about 70 paise per litre in Bengaluru. The increases have been higher in the case of diesel. The paise-light daily change have become a rupee-heavy cumulative burden for consumers.

The government has kept fuel prices at extortionate levels by relentlessly hiking excise duty and value-added tax on them. About half the price of petrol paid by the consumer is accounted for by taxes. The central and state taxes on petrol and diesel have increased by 115% and 300% respectively since 2014. This shows that the government has been the main beneficiary of the deregulation of petrol and diesel effected since 2010.

The profits of oil marketing companies, and the dividends they pay to the government, have soared. The consumer feels short-changed as the promise of passing on the benefit of lower crude prices has not been kept. This was an important reason advanced for the deregulation of petroleum prices. All import-dependent neighbouring countries like Pakistan and Bangladesh have passed on the benefit of lower crude prices to their citizens.

The government has ruled out any reduction of taxes and cut in prices. But it should convince us why it is good for the citizens and the economy. Neither the argument that a good share of the taxes goes to the states nor the claim that the proceeds are used for welfare programmes and infrastructure development are acceptable justifications. Governments always claim that all taxes, however high, are for development.

Similarly, the claim that high prices will discourage the use of fossil fuels, which cause environmental damage, is not true. The consumption of conventional fuels will not come down in the absence of adequate availability of alternatives like electric vehicles or solar power. Consumption has actually risen despite increasing prices. Reducing the taxes and fuel prices will help the economy by boosting savings and private expenditure. The government should do that.