Taxes on fuel should be used to fund infrastructure projects

Govt must not give in to pressure from consumers to slash excise duties

Petrol and diesel are currently retailing in Delhi at ~70.39 and ~58.74 a litre, respectively — or just below their corresponding levels of ~71.41 and ~56.71/litre on May 26, 2014 when the Narendra Modi government assumed office. Given that the average cost of crude oil imported by Indian refiners has more than halved during this period — from $108.05 to $53.83 a barrel — consumers have every reason to complain. The main reason for the crash in international oil prices not being passed on to consumers has, of course, been the Centre simultaneously hiking the specific excise duty on both petrol (from ~9.48 to ~21.48/litre) and diesel (from ~3.56 to ~17.33/litre). For a country short of fossil fuel resources, there is a long-term case for restraining consumption and promoting energy efficient production alongside renewable technologies. The Modi government should, hence, ignore populist pressures to slash fuel excise duties now.

But it could do two things to partly assuage consumer feelings. The first is to convert a portion — maybe even 50 per cent — of the excise on petrol and diesel into a cess, whose proceeds would be used solely to fund railways, metro, highways, irrigation, port and other infrastructure projects. Secondly, simply allowing oil marketing companies to make automatic price adjustments to import parity levels on a daily basis isn’t deregulation. The market needs to be thrown open to independent fuel retailers, who would source petrol and diesel from where it is cheapest, rather than from captive refineries.