AA Edit | Fuel prices untenable, government must revisit tax structure

Fuel prices soared across India for the eighth consecutive day on Tuesday. Since there are no elections anytime soon in the country, Indian oil companies merrily pass on every increase in global crude oil prices in the true spirit of a market-determined price regime on highly taxed petrol and diesel while the Narendra Modi government looks the other way.

Petrol price with certain additives crossed an unprecedented Rs 100-mark in many cities in Madhya Pradesh, forcing many petrol pumps to shut down as their old analogue fuel dispensing machines were not designed to show a three-digit figure. Its neighbour Maharashtra would soon knock at the three-digit figure. States like Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, Kerala, Bihar, Punjab, West Bengal and Odisha, which are in the Rs 90-a-litre-petrol club, could soon follow Maharashtra in joining the Rs 100-a-litre-petrol club.

Since the retail price of petrol has crossed the Rs 100-mark even when the Indian crude oil basket is US $54.79 a barrel, there is a possibility of a considerable upswing in fuel price as the global crude oil price as of February 16 stands at US $63.07 a barrel. 

While the global fuel prices were to be blamed for a daily increase in fuel prices, it is heavy taxation — as high as 61 per cent in some states — that brought the fuel price to this unprecedented level. Ever since tax collection was effected slowing the economy, the Central government has gradually increased levies over the last six years of low global price regime — Rs 11 of special additional excise duty, Rs 18 of road and infrastructure cess and Rs 2.5 of agriculture and development cess. 

The stance of the BJP on fuel price has been quite paradoxical. While it demanded higher fuel subsidies when it was in the Opposition to protect consumers from higher global fuel prices when the crude oil price was as high as US $110 a barrel, it has turned petrol and diesel into a cash cow because of its inelastic demand curve. 

On May 16, 2014, when the NDA came to power, the price of petrol in Delhi was Rs 71.41 per litre when global crude oil price (Indian basket) was $106 a barrel. Compared to this, the crude oil now stands at around $55 a barrel, which is almost half of the 2014 price, but the retail petrol price in Delhi, instead of halving, is now Rs 89.

The treatment of petrol and diesel as sin products for taxation is patently wrong. It’s an accepted fact that a hike in diesel price is an indirect tax imposed on the poor as they will bear the brunt of the resultant price rise. In rural India, where public transport is almost non-existent, petrol-run bikes are the predominant mode of transport for the poor and lower-middle-class people. Heavy taxes on fuel, therefore, go against fair tax practices which discourage the government from taxing the rich and the poor equally. It is also an irony that instead of — for example — taxing profits earned by a few thousands of super-rich people in speculative investments on the stock market, the government is bent on burning holes in already torn pockets of the common man.