Petrol prices: A milch cow for Centre, states

Prime Minister Narendra Modi has not crowned himself with glory when he blamed six non-BJP governments for not reducing fuel prices in their states. He was on shaky grounds when he made the accusation while having an interaction with the chief ministers on Wednesday. The comment was totally unwarranted as the meeting was held to review the Covid-19 situation in the country, which has been causing alarm and to take remedial action. He just wanted to score some brownie points against the Opposition and utilise the forum for this purpose. The burden of his song is that following the Centre’s decision to reduce excise duty on petroleum products, the BJP-led state governments have reduced the value-added taxes on such products. However, he mentioned six Opposition-ruled states like Kerala, Tamil Nadu, West Bengal, and Maharashtra as not having reduced the prices. In short, he wanted to project the BJP as more alive to the needs of the population than the Opposition. In the name of linking international oil prices with domestic fuel prices, the Centre has been increasing the prices of petrol and diesel, through a pricing mechanism controlled by the government. For some time in 2021, the increase was stopped because of the elections in states like Uttar Pradesh, Uttarakhand and Goa. When protest arose over the prices crossing the Rs.100 per litre mark, it made a marginal decrease in excise duty in November 2021 forcing states to take their own cue and cut the prices. Some states did act on their own, while many found that their financial condition did not allow them to make a matching cut. That the Centre is not bothered about the prices is borne out by the fact that it has been increasing the prices on an almost day-to-day basis until recently. Obviously, Modi did not do his homework well before pointing the accusing finger at states like Maharashtra.

It is no secret that Modi was lucky when he came to power at the Centre in 2014. International crude oil prices had touched rock bottom, unlike the high levels they touched during the UPA regime. Ordinarily speaking, the government should have reduced the domestic oil prices and passed on the benefits of the lower crude prices to the consumer. Far from that, the government has been increasing the excise duty and surcharges on fuel to mop up revenue to finance gargantuan infrastructural projects, including the giant Statue of Unity. It raised an additional revenue of Rs. 26 lakh crore. Nobody expected Modi to pass on the money to the people like the Rs. 15 lakh per person he promised if he came to power from the money Indians had allegedly stashed away in European and Scandinavian countries. At least he should have kept quiet and not made fanciful claims. The Opposition-led governments have a point when they say that the Centre has been indulging in pricing jugglery to deprive them of a share in the taxes on petroleum products. For instance, when the excise duty is increased, a share of the increased duty has to be shared with the states on a certain percentage basis. However, when the Centre imposes some cess or surcharge on fuel, the money generated does not have to be shared with the states. To put it differently, it is the Centre that has been making the maximum out of the oil prices. This leaves the states with minimal options to beef up revenue. One complaint almost all states have is that the GST regime has been decidedly against their interests. It has deprived the states of the right to tax. They alleged that the sharing of the GST revenue between the Centre and the states has been against their interests. They do not have much scope for increasing their VAT revenue. Petroleum products are an exception.

Modi wants to give the common man the impression that if oil prices have crossed the Rs. 110 mark in many states, it is the Opposition, not the BJP, which is to blame. He knows only too well that it would be suicidal for the states to cut the state taxes on fuel and thereby deprive themselves of a subsisting income. Small wonder that states like Kerala, Tamil Nadu, West Bengal, and Maharashtra have pooh-poohed Modi’s accusation. While praising his home state Gujarat, Modi forgot that the highest tax on petroleum products is levied in Haryana, which is also ruled by the BJP. As the saying goes, “Why beholdest thou the mote that is in thy brother's eye, but considerest not the beam that is in thine own eye?” Cooperative federalism enjoins upon the Centre and the states to work in concert to meet situations like the one created by the war in Ukraine but that is not by blaming each other.