Fuel price reduction of ₹45 in the works

ACTION PLAN Cuts in excise, VAT and oil marketing companies’ commissions on the table

NEW DELHI: Fuel prices may soon be cut by ₹4-5 in most parts of the country, if the central government goes ahead with a plan that involves a marginal cut in the excise duty on the fuel, and provided it is successful in its efforts to convince states to cut the Value Added Tax on fuel and oil marketing companies to take a cut in their commission on sales.

One of the senior-most bureaucrats in the Narendra Modi government detailed the plan to Hindustan Times on condition of anonymity. According to this person, the central government is very concerned about rising fuel prices and the cut could happen “very soon”. But it is important that states and oil marketers play their part, this person added, because the “Centre alone cannot bear the burden”.

The Left government in Kerala on Wednesday announced a ₹1 cut in petrol and diesel prices, with effect from June 1, by marginally reducing sales tax on fuel.

Fuel prices have risen continuously every day for the past fortnight. On Wednesday, petrol was selling at ₹78.42 per litre and diesel at ₹69.30 a litre. The increase is on account of hardening global prices of oil.

Oil prices have gone up sharply. In 2016-17, the average price of crude in India’s basket was $47.56 a barrel. That rose to $56.43 in 2017-18. It was $63.80 in March. By April, it was $69.30.

Oil is currently trading at close to $75 a barrel, down from a high of almost $80 last week, a fall

that’s provided a breather of sorts. The high prices have hit most people hard and raised the spectre of inflation. They have also provided an opportunity for the National Democratic Alliance’s (NDA) opponents to criticise the government.

That’s because a significant component of fuel price is taxes. While it varies across states, the pattern is usually similar; in Delhi, for instance, central taxes account for around 25% of the retail price of petrol; state taxes, 21.2%, and dealer margins, 4.7%. When the price of oil went down, the NDA government increased

duties and used the revenue from this to fund development programmes. Other government officials admitted this but said that public spending to the tune of ₹120,000 crore was facilitated by these duties.

“At the time when private companies were not willing to invest money into the country, the Modi government using prudent public finance policy decided to push up the public spending,” said one of these officials who asked not to be identified.

Of the central taxes, 42% is given to the states.