Excise duty cut on fuel too little, too late

The Centre keeps reminding restive consumers that petrol and diesel prices are now market-driven and they have to bear with the daily change in prices. It is between the oil marketing companies like Indian Oil Corporation or HPCL, BPCL and us, we are told, and the government stays at an arm’s length. Yes, the Narendra Modi government has lived up to this premise, but only when international crude price is high or when the rupee is weakening and pushing up fuel prices at the pump. In both these situations, it is convenient for the government to live by the principle of market-driven prices. But has the Centre applied the same principle in the past three years, when international crude prices have been at historic lows? After all, crude prices fell dramatically almost as soon as the Modi government took office – from $108 a barrel at the time of its swearing-in to $29 a barrel at one point. It has since risen slowly to about $50 a barrel now. 

Instead of passing on the benefit of low crude prices to consumers, the government has artificially held up fuel prices at historically high levels. To do so, it raised excise duty on petrol and diesel as many as 11 times — by about Rs 12 a litre in all on petrol — and has pocketed the bonanza out of the low international crude prices. When reminded about it, the standard reply has been that the government needed funds for infrastructure development and social schemes. The people have tolerated this level of taxes and duties for a long time, but now the international crude price is on the rise, even if slowly. The government cannot ask people, especially given the climate of economic gloom, to pay market price plus this high level of taxes and duties on fuel.

Sensing the mood, the Centre has announced a cut in excise duty of Rs 2 a litre on petrol and diesel. This is too little, too late. Consider this: the government says that with the paltry cut, it is making a revenue sacrifice of Rs 13,000 crore for the remaining months of the fiscal. If that’s the case, then imagine how much the government has raked in with total levies on fuel price amounting to about Rs 22 a litre over the last three years! Now, having shown a small mercy with the Rs 2 duty cut, Finance Minister Arun Jaitley has signalled that any further drop in price will have to come from VAT cuts by the state governments. But are the state governments, already facing huge revenue deficits, willing?