Why Petrol Prices Skyrocketing?

The prices of petrol and diesel are at a record high level. The prices of both the fuels have broken all previous records in the past few days.

India imports 80 percent of its crude oil requirements. Therefore, often it is argued that the domestic fuel prices will have to rise when international oil prices are increasing. But, crude oil prices are still in the $55-60 range per barrel, which does not justify such a high retail price for Indians. Nearly two and half years ago, when global crude oil prices were around $75 a barrel, petrol was selling in India for Rs 75 a litre. Today, when crude oil prices have fallen to $52 a barrel, petrol prices have hit an all-time high of over Rs 90.

This is precisely because the governments have been increasing the duties on petrol and diesel whenever international prices are lowered instead of passing the benefit of lower crude prices onto the end consumers.

Since assuming office in 2014, Narendra Modi led government has raised the excise duty on petrol and diesel by nearly 350 percent and 894 percent respectively. As a result, 67 percent of the retail price of the petrol and 61 percent of that of diesel go towards taxes as of today.

The total excise duty on petrol today stands at Rs 32.98 per litre and that on diesel Rs 31.83 a litre. The excise tax on petrol was Rs 9.48 per litre when the Modi government took office in 2014, and that on diesel was Rs 3.56 a litre.

Besides, the excise duty levied by the central government, the respective state governments impose VAT on these commodities.

According to Controller General of Accounts(CGA), in 2019-20 fiscal, excise duty from petroleum products  accrued to the central government totalled Rs 2,39,599 crore. The central government revenue from excise duty on petroleum products more than doubled to Rs 2,42,000 crore in 2016-17, from Rs 99,000 crore in 2014-15.

Thus, both the central and the state governments have been using petroleum products to mop up their revenues though these transport fuels have cascading effects on the prices of many commodities.  Thus, there is a resistance to bring petroleum products under the GST regime.

A year ago the global crude prices fell to as low as $25 per barrel. The price of petrol, should, then be Rs 50 a litre. But, the governments imposed massive duty hike to deprive the consumer of the gains from the low global oil prices. It is therefore atrocious to transfer the burden of rising global oil prices to the consumer.

By Prof K Nageshwar

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