AA Edit | High fuel prices point to a much deeper malaise

The price of petrol and diesel at the pump must come down. It is being kept artificially high for the sake of revenue collection from a source of ready cash from among the people of India. The Tamil Nadu finance minister, a celebrated technocrat from the world of finance and investment banking, fired the first shot on the issue of fuel prices by reducing the price of petrol by Rs.3 a litre to show it can be done by governments if there is a will to act. The potential creation of a national template like this may come at a loss of over Rs.1,100 crore annually to the State’s exchequer but an important message is being conveyed as the price of fuel is being brought down when there is no election compulsion though the DMK did promise reduced fuel prices as a pre-poll promise.

It is a specious argument that the Centre is now unable to cut duties on fuel because of the legacy issue of oil bonds to be paid for since the UPA government had subsidised fuel to the tune of Rs.1.34 lakh crores. This was done in the first part of 2010s when international prices were ruling upwards of $100 per barrel but fuel prices were controlled in India by compensating oil companies with these bonds on which interest and principal repayments are due in the next few years. The revenue in 2020-21 to the Union government from levies on petrol and diesel was Rs 3,89,622 crores, up from Rs.2,39,452 crores in 2019-20. More than sufficient additional revenue accrued to the Union government after it had, quite cleverly, brought down substantially the share of state governments in Union excise duty.

It is unconscionable that while petrol was priced around Rs.72 a litre in June 2014 when the price of crude oil was $109 per barrel that it should be well over Rs 100 a litre all over India when a barrel of Brent Crude is trading at $69.36 today after having sunk below $40 a barrel in 2020. Indians are paying over twice the price at which fuel is sold in London or New York. How ironically discriminatory this approach to taxation is becomes evident when seen against a background of a generous reduction of taxes on corporates in 2019 that saw India Inc. go laughing all the way to the bank even during the pandemic while the common citizen is still suffering the ill effects of the Covid-19 pandemic and consequent lockdowns and restrictions on lives and livelihoods.

The perpetuation of boosting revenue by taxing fuel is indicative of a mindset that favours the Centre over the states, further highlighted by the difficulties all states have faced because of the dip in GST collections during the height of the pandemic as well as a borrowing mechanism by which the Centre acted on its assurance that revenue losses would be compensated. There is a fundamental mismatch in revenue sharing through discretionary and non-discretionary flows that throws more light on a trend that should be of concern to all the states. There is good reason to listen to Tamil Nadu’s contention that all this is leading to a reduction of state autonomy, which runs contrary to the principles of federalism.