Greed for revenue keeps petrol, diesel prices high even in low oil price market
New Delhi, June 29 2020 - The economic crisis triggered by the Covid-19 pandemic has once again shifted attention of both the Centre and the states towards the oil sector to generate additional revenue for meeting the spending needs for exigencies.
The milking of the sector for revenue has gone to such an extent that common consumers have turned the beast of burden carrying the load of higher central and state taxes and paying for jacked up auto fuel prices at a time when global oil prices remain moderate after the historic pricing crash witnessed in early May.
Since March this year, just before the nationwide lockdown was announced, the Centre has raised excise duty on petrol and diesel by an unprecedented Rs 13 and Rs 16 per litre, respectively, in two instalments. This itself will provide the Centre additional revenue to the tune of Rs 2,25,000 crore in one full year.
Moreover, the Centre can further raise duty on the two products by Rs 3-6 per litre, thereby raising another Rs 50,000-60,000 crore. So, the total earnings for the Centre from petroleum products itself could top Rs 2,75,000 crore in additional revenue besides over Rs 2,15,000 that it already gets in a year as excise revenue from the petroleum sector.
The states are not far behind with Haryana, Tamil Nadu, Maharashtra, Karnataka, West Bengal, Uttarakhand, Delhi and a few others raising VAT on petroleum products to meet the shortfall in their GST collections.
The state governments' revenue from the levy of sales tax/VAT on petroleum products has been rising consistently since 2014-15 when it stood at Rs 1,37,157 crore, to Rs 2,01,265 crore in 2018-19. In 2019-20, the states have earned Rs 2,00,247 crore from taxes on petroleum products.
All this has come at a time when oil markets globally have become favourable for major energy importing countries like India that meets over 85 per cent of its oil needs through imports.
Even now, global oil prices are more than 40 per cent lower than the January levels but retail prices of petrol and diesel have overshot the January levels, much to the discomfort of the consumers who are already bearing the brunt of the economic crisis with salary cuts or job losses or severe squeezing of business operations.
"The greed for revenue has always turned governments towards petroleum products which have now become easy to tax without much backlash. But the situation has denied the consumers of an opportunity to pay for petrol and diesel at almost 2005-06 prices that would have been a big relief for them in this difficult period," said an oil sector analyst, who asked not to be named.
International crude prices are hovering at around $41 a barrel. At similar level of crude prices or a bit higher in the years 2004-05, 2015-16 and 2016-17, the retail price of petrol hovered around Rs 35 a litre, Rs 60 a litre and Rs 65 a litre, respectively.
Diesel prices during these years moved from Rs 39 a litre to Rs 45 and Rs 52 a litre on an average. But the retail price of petrol and diesel on Monday stood at Rs 80.43 and Rs 80.53 a litre, respectively, in Delhi even though crude is around $41 a barrel.
"Petrol and diesel prices could have fallen to unprecedented low levels in April and May when crude dropped to just about $20 a barrel. But tax increases kept with oil companies did not allow to raise retail prices, and kept consumers from savouring the benefit of low fuel prices," the analyst quoted earlier said.
Even though the Centre and state governments raised taxes on the two petroleum products, oil companies were asked not to raise the retail prices since March 14. So when, oil companies were given a go ahead and they stared daily price revision, petrol and diesel prices went up on 22 of the 23 days since June 7 by over Rs 11 per litre even though during this period global oil market remained fairly stable with crude hovering between $40 and $42 a barrel.
Taxes on petroleum products and its non-inclusion into the GST fold is the prime reason why it has become the milking cow for governments for any exigencies. Picture this, the base price of both petrol and diesel is around Rs 22 per litre, but the retail price is Rs 80 a litre, meaning that taxes account for more than 200 per cent of the price of the product.