The Central Government is not ready to step in and rein-in the prices of petrol and diesel that is hitting a fresh high in more than four and half years. The finance ministry indicated that it was not ready to reduce excise duty on the oil prices to offer relief to the common man. This is in contrast to a decision taken in October last year when the government announced a reduction of Rs.2 on petrol and diesel prices.
States Should Act
The central government feels that the States should come forward and reduce its VAT or sales tax on fuel. On Monday, prices of petrol hit Rs.74.50 a litre, which is a 55-month high, while diesel reached Rs.65.75. This has renewed a call to cut excise duty to reduce the consumers’ burden. In India, petrol price is significantly higher compared to the rest of the countries. However, the same cannot be said in respect of diesel prices since it will directly impact the prices of essential commodities.
The official from the finance ministry pointed out that the government is treading on a path to cut down the budgetary deficit. Therefore, it was not advisable to reduce excise duty that makes up for a quarter of retail fuel price, The Hindu reported. Earlier, the RBI Governor indicated upside risks to inflation due to several factors. Oil price rise could be the main reason.
The official indicated that reducing excise duty would be a political call. However, he pointed out that if the government should stick to its fiscal deficit path announced in the budget, then it is not advisable to cut the duty. He indicated that there is a plan to cut fiscal deficit to 3.3 percent of the gross domestic product (GDP) in the current fiscal year compared to 3.5 percent in the last year. The finance ministry official disclosed that there would be a loss of Rs.13,000 crore if Re.one is reduced on excise duty.
He also pointed out that the oil ministry is yet to approach for an excise duty cut officially. However, the official thinks that States could reduce value added tax (VAT) to reduce the consumers’ burden. Interestingly, most of the States were reportedly not in favor of including oil in the GST. Bringing fuel under the GST could have reduced the petroleum prices.
No Impact On Inflation
The official thinks that fiscal considerations were greater than one or two rupee price impact on consumers. He does not believe that this would impact inflation. For petrol, the central government levies excise duty of Rs.19.48 and Rs.15.33 for diesel while VAT varies from State to State. However, in Delhi, VAT is Rs.15.84 on petrol and Rs.9.68 on diesel.
The government’s hopes hinge largely on geopolitical tension to ease while shale oil in the United States to help oil prices ease. The center is not ready to tinker with the autonomy given to oil companies to revise rates based on market conditions. However, the biggest question that is haunting everyone’s mind is that the center was able to increase its excise duty nine times during the period of November 2014 to January 2016 whereas it could reduce only once after that.