Amiya Kumar Sahu

A reduction in retail fuel prices is possibleif additional excise duties are rolled back

Petrol and diesel prices have remained close to Rs. 100 for about 10 weeks since July 8, 2021. The impact of this has been on fuel inflation (Wholesale Price Index) which averaged at more than 25 percent for the last five months.

The international crude oil price, however, reveals a different picture. Brent crude oil prices fell from $77.16 to $65.18 between July 5 and Aug 20, a reduction of over 15 percent. In layman's terms, the price of petrol in India could have been decreased to Rs 85.

Back in 2017, the Oil Marketing Companies (OMCs) were given a free hand to follow dynamic fuel pricing to make their operations more efficient. Why the OMCs have stopped daily price revisions is a mystery. Is it because they are still controlled by the government which has a majority stake in them?

The RBI has also warned that high prices would trigger higher inflation which would affect growth. But it seems the government has decided to continue milking the cash cows — the consumers.

While protection of consumers' interests necessitates government interventions, a reduction of the high prices seems to be far from reality. In May last year, the government imposed additional excise duty on both petrol and diesel, which included road and infrastructure cess – an additional revenue worth Rs 1.6 lakh crore. Since the country was forced into a pandemic-induced lockdown, it made commonsense as well as economic sense, then. The fiscal situation was expected to be tight.

However, since May 2020, the total taxes on petrol have crossed Rs 50 per litre. It was a paltry Rs 9.48 per litre when the BJP government replaced UPA II in 2014. Is the government still expecting the fiscal situation to be similar to last year's? Let's look at the GST data which might give a clue in support of this.

Back in April 2020, when India was under a complete shutdown, the GST revenue collections fell to Rs 32,294 crores from Rs 97,597 crores. However, from March to August 2021, the GST collected has been Rs 6,98,257 crores. This was a jump of more than 50 percent compared to the same period in the previous year.

The USD/INR exchange rate also has been favourable to import bills of crude oil. The exchange rate corrected from a peak of Rs 77.10/ USD in April 2020 to Rs 72.26/ USD in March 2021. It now is ranging between Rs 73 to Rs 75.

A reduction in retail prices is unquestionably possible. All that needs to be done is to roll back additional excise duties. At present, the total excise duty on petrol exceeds Rs 37 per litre. The other alternative is to bring the petroleum products under GST.

Since the government has remained stubborn after numerous pleas for a reduction in the petrol and diesel prices, a set of new questions arise: Is the government planning to put up a surplus budget in February 2022? Is it anticipating a severe third wave and lockdown similar to last year? Larger subsidy amounts are likely to be given to the poor?

Let's evaluate another argument. Higher prices would reduce consumption of the fossil fuel and help reduce global warming. But we need to reduce dependency on personal vehicles and move to large-scale adoption of public transport. But mass-rapid transport systems are not effective. If the government wants to promote electric vehicles, then we donot have the technology, capacity to produce in large quantities, and required infrastructure for re-charging battery-run vehicles.

(The writer is Associate Professor, Goa Institute of Management, Goa. The views expressed are personal.)