No relief on fuel prices soon, worse ahead likely
Petrol and diesel rates reached fresh highs on Tuesday commanding a price of Rs 79.31 and Rs 71.34 a litre in Delhi.
New Delhi: Consumers may have to wait for another month before there is any moderation in the retail price of petrol and diesel that reached new highs in the past few days in the wake of the rise in global oil prices and a sharp depreciation of the rupee.
Sources in the government said that though the Centre has ruled out any immediate cut in excise duty on petroleum products, it may re-examine the situation next month and could consider changes if oil prices remain over $75 a barrel for most part of September and state governments come on board to reduce VAT rates.
Even last year, the centre reduced excise duty on the petrol and diesel by Rs 2 per litre in October. However, this cut came after the government had raised duty on nine occasions between November 2014 and January 2016 taking advantage of falling oil prices then.
“The situation in the global oil market could turn worse from November when substantial production from Iran could vanish from markets in the wake of US sanctions. If oil cartel OPEC refuses to pump in an extra 1.5 million barrels of oil per day, crude prices could hit $100 a barrel. This would make life miserable for the common man as petrol and diesel prices could cross Rs 100 a litre in the absence of any government support,” said an oil sector analyst asking not to be named.
Sources said that as part of the exercise to tame petrol and diesel prices, the centre is nudging states to cut VAT rate on the two products. The average VAT rate is over 30 per cent and states have actually made a killing during the current run of retail price rise for petrol and diesel as it has increased their tax kitty substantially.
In addition, state-owned oil marketing companies have also been told to reduce the frequency of daily price increases and absorb some losses till crude prices moderate. Excise duty cut would be the last option and if it happens, it would be at moderate levels of Rs 2 per litre, said the sources.
“It is time the government thinks of bringing petroleum products under the GST regime to reduce high levels volatility. But immediately, states should agree to cut VAT rate on petrol and diesel by 5-6 per cent along with some cut in excise rate by the centre.
The economy is growing by over 8 per cent and tax revenues are going up. There is no reason why the government’s reliance on oil sector for taxes should reduce even now," Kirit Parikh, chairman, Integrated Research and Action for Development (IRADe) and former member of planning commission.
According to the oil ministry’s Petroleum Planning and Analysis cell, VAT and sales tax on petroleum products have increased states’ kitty by Rs 1,84,091 crore in FY18 from Rs 1,66,378 in FY17. In fact, the ad valorem duty on petroleum products have consistently increased state’s tax collections at the cost of consumers who have to bear with higher prices of petrol and diesel.
Compared to states, the Centre’s excise collection from petroleum sector has actually fallen marginally in FY18 to Rs 2,29,019 crore in FY17 from Rs 2,42,691 crore. But it has more than doubled from Rs 99,184 crore in FY15 due to nine increases in duty rates.
“Duty cut has become imminent now if the government is serious about protecting the common man from price rises. The Centre should ensure that the states where the government is being run by the ruling party takes up the responsibility of reducing value-added tax (VAT) rates first. The others would definitely follow. The important issue is to prevent any further increase in diesel prices that could fuel inflationary pressure and put pressure on growth prospects of the economy,” said B K Chaturvedi, ex-cabinet and oil secretary.
India imports 83 per cent of its oil requirements and any spike means higher import bill and higher domestic prices. Petrol and diesel rates reached fresh highs on Tuesday commanding a price of Rs 79.31 and Rs 71.34 a litre in Delhi, respectively. It could rise further if crude oil and product prices move up in international markets.
The benchmark Brent has already reached $78 a barrel, while rupee depreciated further on Tuesday to close at a record low of Rs 71.58 per dollar. With US sanctions on Iran becoming effective from November, the fear is that crude could rise further.