No end in sight

No end in sight
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On Friday Petrol and diesel prices scaled new highs as rates witnessed an increase on account of rupee depreciation and rise in international oil rates. While petrol price was increased by 28 paise a litre, diesel rates went up by 22 paise, according to a price notification of state-owned oil marketing companies.

In Srinagar Petrol prices have almost touched 86 Rs a litre and Diesel is sold almost Rs 80 a litre. The latest hike in the fuel prices has taken the cost of the fuel to a new high with the common man feeling the heat.

The fuel price hike has meant that all essential commodities are touching new price peaks and there seems to be no end in sight for the commoners. The government on its part has expressed helplessness by saying that the cost of the fuel is beyond its control and they have no other option than to watch as a mute spectator.

Fuel prices have been causing anguish and anxiety for the people. A combination of a dip in rupee value against the US dollar and rise in crude oil prices has led to a spike in pump prices since mid-August. Petrol price has since risen by Rs 4.20 per litre and diesel by Rs 4.53 – the most in any one-month period since the daily revision in fuel prices was introduced in June last year.

While crude oil rates flirted with the USD 80 per barrel mark, the rupee has plunged against the dollar. The combination of the two makes imports costlier directly hitting the price.

The other aspect has to do with the excise duty on petrol and diesel, imposed by the government, which has risen sharply over the last few years. According to data with the Petroleum Planning and Analysis Cell of the Ministry of Petroleum and Natural Gas, the excise duty on branded petrol is ₹20.66 a litre or almost 28% of the total price of the fuel. This proportion is 27% for branded diesel.

Excise duties have risen significantly since 2013-14, accounting for 22-25% of the retail prices of petrol and diesel respectively, compared with 12-15% earlier when crude prices were at similar levels.

The advantage of linking domestic fuel prices to the global oil market, as India has done, is that oil marketing companies (OMCs) are no longer forced to sell fuel at subsidised rates. But on the flip side, as can be seen now, is that the consumer is forced to buy fuel at high prices when global price levels are elevated. So, one thing the government can do, and which it is reportedly considering doing, is to ask the OMCs to refrain from passing on the higher oil prices to consumers.

In other words, this would represent a return to the previous subsidy regime, albeit somewhat better.

The government can always reduce the excise duty on petrol and diesel thereby earning a lower revenue but at least easing some burden on the consumers. However, given the mood in the government that seems unlikely to happen.

Centre and States bank on tax revenues to meet developmental needs. Forty-two per cent of collections from excise duty (on petrol and diesel) goes to States and out of the remaining, 60% is used to fund Centre’s share in development schemes in States.

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