Diesel crosses ~100/litre in Odisha and Rajasthan

The price of diesel has crossed the ~100/litre mark in some parts of the country on the back of global cues and high levels of state and central taxes. Rajasthan’s Sri Ganganagar and Hanumangarh, and Odisha’s Koraput, Nabarangapur, and Malkangiri were some districts where diesel sold above ~100 a litre on Monday.

The price of diesel has crossed the ~100/litre-mark in some parts of the country on the back of global cues and sustained high levels of state and central taxation.

Rajasthan’s Sri Ganganagar and Hanumangarh, and Odisha’s Koraput, Nabarangapur, and Malkangiri were some of the districts in the country where diesel sold above ~100 a litre on Monday, while in Madhya Pradesh’s Anupur, the rate was ~99 a litre.

Diesel is expensive in these states as they levy the highest rates of Value Added Tax (VAT) alongside cesses on auto fuels in the country. The price is even higher in these cities because of added freight costs, incurred in transporting diesel, that are also borne by consumers.

States such as Andaman and Nicobar Islands, Arunachal Pradesh, and Meghalaya, where diesel is the cheapest have low VAT rates ranging less than 13 per cent.

In addition to the state levies, the Centre imposed a basic excise duty of ~1.80/litre, special additional excise duty of ~8/litre, agriculture infrastructure and development cess of ~4 per litre and additional excise duty (road and infrastructure cess) of ~18 a litre. The correspondingly high state levies are largely on account of the tweaking of central levies to increase the take of the central government at the cost of the states.

For most of 2016-17, some 56 per cent of the excise duty on auto fuels was levied as cess. This is revenue from excise collections which the Centre retained. The rest of fuel revenues went to the kitty, which was shared with states.

But in 2020-21, less than 10 per cent of excise taxes went to that kitty. In other words, the Centre now keeps much more of the tax collected on auto fuels solely for itself, and does not share it with states.

This puts the states, especially those that are not on favourable terms with the central government, in a position where they need to maintain higher levels of state levies.

The Centre had hiked these duties when global crude oil and benchmark petrol and diesel prices were at lows. The fall in international prices was due to a demand slump in light of the Covid-19 pandemic. But that pessimism seems to have been shrugged off and Brent (the most popular marker for crude oil prices) is well above $70 a barrel now.

This is due to a strong global drive towards vaccination and expectations of a demand recovery as lockdowns ease around the world. In Delhi, the price of diesel has risen from ~73.87 a litre on January 1, 2021 to ~87.97 a litre on Monday (June 21). This rise of over ~14 a litre has a cascading effect on all other commodities since it pushes up freight costs through truck rentals.