South Asian Insider
Oil price in India soars, 4 states offer relief
By Susmita Ghosh
In order to rein in the soaring prices of petrol and diesel, four states have cut taxes in recent days. This resulted in giving some relief to consumers who are feeling the pinch of a sharp rise in global rates and the high level of taxation. The states like West Bengal, Assam, Rajasthan and Meghalaya have cut their taxes. But even with the mitigation, the price of diesel in Delhi is cheaper than in three of these states, while the price of petrol in the capital is lower than two of them.
Rajasthan was the first state to reduce the Value Added Tax (VAT) from 38 per cent to 36 per cent. The poll-bound state of West Bengal followed by cutting VAT on petrol and diesel by Re 1. The state of Assam, which had imposed an additional tax of Rs 5 in 2020 to generate revenue amid the Covid-19 crisis, has also retracted it. The state of Meghalaya has cut not only Rs 7.4 per litre on petrol and Rs 7.1 on diesel but also VAT on petrol and diesel by Rs 2. This provided by far the biggest relief in the country.
In spite of the unprecedented rise in fuel prices in the past two months, the Centre is reluctant to cut excise duty. When the pandemic shut down economies and India’s crude purchase cost fell to US$19.9/barrel, the Centre raised the excise duty by Rs 13 a litre on petrol and Rs 16 on diesel between March and May 2020.
Union Petroleum and Natural Gas and Steel Minister, Dharmendra Pradhan pointed out oil-producing countries for producing less fuel. According to the minister, there are two main reasons for the fuel price rise. The reduction of fuel production by the international market and manufacturing countries producing less fuel to gain more profit. “This is making the consumer countries suffer,” said Pradhan in a rally in Assam. The minister further said that the Centre has requested OPEC and OPEC Plus countries to increase output.
Finance minister Nirmala Sitharaman said that the price hike was perturbing and it presented a “Dharma Sankat (dilemma)” for the government.
The crude oil prices have risen more than 60 percent since early November because vaccines against the virus provided hope for economic recovery. In spite of US President Biden’s plans for a US$1.9 trillion stimulus that is expected to raise demand, freezing weather in the U.S. caused disruption and squeezed the supply by the oil cartel OPEC. The Indian fuel price rates followed a similar trajectory.
In theory, Indian oil marketing companies like Indian Oil Corporation are free to set their own prices for petrol and diesel based on international prices. But the state and Centre taxes make up a significant portion of the retailing price. A litre of petrol and diesel costs about Rs31-Rs33, while the rest of it is central and state taxes. Thus Indian customers don’t really see the benefit of price decontrol.The increased central government taxes on petrol and diesel by the Narendra Modi government does not pass on the benefits of lower global prices to Indian consumers. Some economists observed that high taxes on petroleum are good for the environment. While it doesn’t really affect India’s poorest, it is the middle-class who feels the pinch in their pockets instead. Other experts however point out that high automobile fuel charges might impact the agriculture and manufacturing sectors, resulting in inflation.
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