Understanding the politics of fuel price
Recently, the BJP government announced a Rs 2.50 per litre reduction in prices of petrol and diesel. Some 12 BJP-ruled states, including Haryana, Uttar Pradesh, Assam and Gujarat, apart from poll-bound MP and Chhattisgarh, also reduced VAT, which resulted into a reduction of the price of fuel in at least 12 states by Rs 5 a litre. Maharashtra announced an Rs 3.2 cut in petrol price, but a decision on diesel is still pending.
On May 26, 2014, the price of crude oil (Indian Basket) was $108.05 per barrel in the international market. The price of international crude oil today is $85.16 per barrel. The average crude price during the 52 months of BJP government is $58 per barrel.
The BJP government has increased central excise duty 12 times in the last four and a half years. The central excise on petrol and diesel went up by 211 per cent and 443 per cent respectively in this same period. Central excise duty on petrol and diesel was Rs 9.23 and 3.46 per litre respectively before 2014. BJP government has raised it to Rs. 19.48 & Rs. 15.33 per litre respectively.
Even though the central government and some BJP-ruled state governments reduced the prices by Rs 5 collectively, the results are not positive for the four metro cities, out of which, three are ruled by non-BJP governments. The data shows that as of October 5, 2018, the prices of petrol and diesel in Delhi are Rs 81.50, reduction from Rs 84. In Mumbai and Chennai, Rs 2.65 and Rs 2.68 were reduced respectively, but in Kolkata it was just Rs 2.50.
(Prices in Rupee)
Just after the BJP government came into power on May 26, 2014, the prices of petrol and diesel in Delhi were Rs. 71.51 and Rs 57.84 respectively. And, in Mumbai, it was Rs 79.36 and Rs. 65.84. At the same time, the prices of crude oil in the international market was $108 per barrel but the prices of the crude oil dropped to $77 per barrel at the start of November and further reduced to $36 in March, 2016. In the same period in 2016, the prices of the petrol and Diesel stood at around Rs 62 and Rs 50 and Rs. 66 and Rs 56 in Mumbai.
The year 2015-16 and 2016-17 was the best in terms of revenue generation from oil for the central government. Revenue from petroleum products went up from Rs 88,000 crore in 2013-14 to Rs 1.86 lakh crore in 2015-16 – a massive 69 per cent jump. The gross revenue collection from the petroleum products was Rs. 2,53 lakh crore in 2016-17, the projection for the year 2018-19 is almost the same as it was in 2016-17 – 2.57 lakh crore.
The Centre projected to earn over ₹10 lakh crore from levies on petrol and diesel between 2014-15 and 2018-19. However, the Central government had requested the States to reduce VAT imposed by them on petrol and diesel to give relief to consumers.
The recent reduction in VAT and excise duty is due to elections in 5 states in November-December. SBI Research suggests that “States can reduce petrol prices by Rs 4.60 a litre and diesel by Rs 3.30 on an average without affecting their revenue arithmetic as the Centre announced a Rs. 1.5 a litre cut on excise duty and asked the oil companies to offer a Re 1 cut on both the fuels”.
While the government’s decision to cut taxes on petroleum products is a positive change, the move’s impact could be limited if the crude price in the international market continues to go up and the rupee falls in near future.