How the oil phenomenon played out under the NDA regime

Consider this: The fiscal deficit in 2013-14 was ~5,029 billion, and the revenue earned from basic, additional and special additional excise duties was ~1,354 billion. This was the last year of the Congress-led United Progressive Alliance (UPA) regime.

In 2016-17, while the fiscal deficit was reined in at ~5,356 billion, revenues from excise duties rose to ~3,223 billion.

This 138 per cent rise in revenues was entirely on account of multi-fold increases in basic excise duties on petrol and diesel once global crude oil prices started falling.

On top of this, excise duties on manufacturing of petrol and diesel shared a bigger pie of the basic excise revenue kitty in 2016-17 than in 2013-14, when excisable goods other than petrol and diesel contributed more. When oil prices were high, basic excise duties on fuels were nearly zero.

Owing to rising oil prices, the government has foregone, and is set to lose further, the additional revenues it garnered from the increased excise duties when the global oil prices were low.

When the fall in oil prices was maximum, the government’s savings on imports were comparable to the gross fiscal deficit (total expenditure minus the total receipts, see Chart 1).

Increased revenues from higher excise duties allowed adequate room for fiscal correction, and helped the government maintain the fiscal deficit below 4 per cent of gross domestic product (GDP).

The benefit for consumers, however, is still not in sight. Consumers paid ~9.48 per litre as excise duties — basic, additional and special additional — on petrol and ~3.56 per litre on diesel, in May 2014. Today, they have to pay ~19.48 per litre and ~15.33 per litre, respectively.

When global oil prices started falling, the government began increasing the basic excise duty on petrol and diesel. This remained at its peak — ~9.48 per litre for petrol and ~11.33 per litre for diesel — for more than 500 days.

In 2015-16, revenues from the basic excise duty (which includes taxes on non- oil products as well) reached its peak at ~3.2 trillion ( see Chart 2). Subsequently, as the crude oil prices started falling sharply, the basic excise duty was also increased accordingly.

In January last year, the crude oil price for the Indian basket was at $67 per barrel, its highest point after November 2014.

However, the Budget 2018-19 kept the effective taxes on both fuels unchanged.

Finance Minister Arun Jaitley at the Budget discussion referred to a range of global oil prices, which would give a certain level of comfort for the economy, and said: “Today we are almost on the outer periphery of that comfort position. If it breaches that, it creates an adversity for us. This is a hard fact beyond our control.”