JOIN USNo politics over fuel taxes, please
Prime Minister Narendra Modi’s call to state governments run by non-BJP parties to reduce the Value Added Tax (VAT) on petrol and diesel has not been taken kindly to by these parties and the Chief Ministers of the states. Modi’s call contained strong criticism of the state governments that did not reduce the taxes and he named and shamed six of them. The criticism is, however, factually, morally and politically weak and unsustainable. During March-May 2020, the Centre hiked excise on petrol and diesel by 44% and 69% respectively when global crude prices were falling. This was done by way of cess which was not shared with the states. The Centre’s revenue from the petroleum sector increased during 2020-21 while that of the states fell. In November last year, ahead of elections in key states, the Centre partially cut taxes on petrol and diesel. It also froze the prices for months but resumed the price hikes after the elections.
The VAT on fossil fuels and the taxes on alcohol and stamp duties are the only major sources of revenue for states after the introduction of the GST. The Covid pandemic has worsened the states’ financial position, and so it is difficult for them to sacrifice their revenues. The central government has not kept its promises to the states on finances. States have complained that they have not got the full GST compensation in time and that the Centre owed large amounts of money to them. The Centre itself admitted on Wednesday that it had released GST compensation for only eight months of the previous financial year and that it was yet to pay them Rs 78,704 crore in this respect. The states have also said that it was wrong on the part of Modi to make his comment at a meeting he had called to discuss the Covid situation in the country, without giving them a chance to respond.
It must be pointed out that the difference between the prices of petrol and diesel in non-BJP states and BJP-ruled states is not so high as to claim, as the Prime Minister did, that the former are harming the latter. It is also going too far to say that the non-BJP states are doing an “injustice’’ to the people. It is the Centre that is guilty of doing such injustice on the issue of fuel prices, and for too long. Cooperative federalism, which Modi invoked, is hardly involved in the matter. It is the Modi government that has violated the principles of federalism on this and many other issues. The Prime Minister has made a political statement, and not a useful suggestion, aimed merely at projecting himself in good light and damning them in the eyes of the people. He should have refrained from striking a partisan political posture on the matter, that too with a half-truth. Petroleum prices need to be cut, but the greater responsibility for that lies with the Centre.