Fuel prices

Diesel cost ₹75.45 in the capital. The relief to consumers will be in three parts — Centre will cut excise duty by ₹1.5, and oil marketing companies (OMCs) will factor in ₹1 in their pricing, and states have been asked to cut VAT as they have raked in windfall gains due to ad valorem nature of the levy that results in higher realisation whenever rates move up, he said.

“The states’ revenue increases because of increased crude oil prices and hence it is easier for the states to absorb ₹2.50,” Jaitley said.

The finance minister said it will be a test for those states whose leaders were only tweeting and indulging in lip sympathy. “What will they do now and last time also only BJP and NDA-led state governments reduced VAT. This time if other state governments do not do it then people will ask them,” he said.

CPI(M)-led Kerala government refused to refused to fall in line.

“Kerala will do so if the Centre brings fuel prices down to the level when Narendra Modi assumed office in May 2014,” Kerala finance minister Thomas Isaac said.

“Ever since the Modi government assumed office, it has raised excise duty on diesel by ₹14 and petrol by ₹9 per litre. You should understand that the reduction effected on Thursday is on this amount. If the Centre is serious, it should reduce the tax to what it was when it assumed office. Then we will also step in,” said Kerala finance minister Thomas Isaac.

Shortly after the Central government announced a cut in fuel prices, the Congress dared Prime Minister Narendra Modi to bring fuel prices back to the 2014 level instead of throwing a “pittance of one or two rupees” at the public.

Addressing a press conference here, Congress spokesman Randeep Singh Surjewala called the cut was “a panic reaction in the face of public anger” ahead of assembly polls in four states.

Pointing out that the BJPruled states of Maharashtra, Chhattisgarh, Jharkhand and Rajasthan levy the highest VAT on petroleum products, he demanded that fuel be brought under the goods and services tax (GST), whose tax slabs are much lower than the VAT levied in states.

BJP president Amit Shah welcomed the Centre’s move. The reduction shows the Modi-led government’s sensitivity towards people’s welfare, he tweeted.

At a press conference, BJP spokesperson Sambit Patra expressed hope that people will get a total relief of ₹5 at the earliest as the Centre has asked states to effect an equal amount of tax cut in the oil prices.

Last month, Rajasthan, Karnataka and Andhra Pradesh had reduced VAT to cushion consumers for a spate of price increases.

Since mid-August, the petrol price has risen by ₹6.86 a litre and diesel by ₹6.73 — the most in any six-week duration after the daily price revision was introduced in mid-June last year.

The move to ask state-owned oil firms, who were given pricing freedom, to absorb ₹1 per litre was seen as a return of government control over pricing, leading to stocks of the Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) tanking.

Jaitley, however, said asking oil companies to bear a part some burden is not going back on deregulation.

For state-owned fuel retailers absorbing ₹1 per litre price would mean about ₹10,700 crore dent in their revenue on an annualised basis. Of this, IOC’s share would be roughly half and the rest split equally between HPCL and BPCL.

Brent, the benchmark for more than half the world’s oil, has touched US $86 per barrel mark, the highest in four years. Also, the rupee dropped to its lowest ever level of 73.77 against the dollar, resulting in expensive crude imports.

Almost half of the fuel price is made up of taxes. The Centre levies a total of ₹19.48 per litre of excise duty on petrol and ₹15.33 per litre on diesel. On top of this, states levy value-added tax (VAT).

Before the reduction, Mumbai had the highest VAT of 39.12% on petrol, while Telangana levied the highest VAT of 26% on diesel. Delhi charges a VAT of 27% on petrol and 17.24% on diesel.

The hike in duties had led to excise collections from petro goods more than doubling in the last four years — from ₹99,184 crore in 2014-15 to ₹2,29,019 crore in 2017-18. States saw their VAT revenue from petro goods rise from ₹1,37,157 crore in 2014-15 to ₹1,84,091 crore in 2017-18.

Jaitley said the total impact of ₹1.50 cut in excise duty is about ₹21,000 crore for full year and ₹10,500 crore the reminder of the current fiscal. “So... absorbing this ₹10,500 crore in increased collection and maintaining fiscal deficit I am confident we will be able to do that,” he said.