THE POLITICS OF RISING PRICE OF PETROL

Petrol price in Mumbai is almost at Rs.87/litre. And in Delhi, price is close to Rs.80/litre.

But there is a puzzle which seems to be going round-and-round in the head.

Firstly, even when crude oil price hit $107/barrel in 2013-14, petrol price in Mumbai did not scale such heights. And today, when crude is at $70/barrel, the price is at Rs.87. Even after accounting for rupee fall, are we missing something here? This math seems completely skewed.

Secondly, the most baffling thing is that neighbouring countries of India – Sri Lanka, Nepal, Bangladesh and even Pakistan; all which buy petrol from India are selling at prices in their country at much lower prices than what we pay in India. How???

Well, the answer to both these mysteries lay in one – excise duty. Yes, there is the falling rupee and rising crude price too but more than that, it is excise duty which is causing all of us so much pain. Over the past four years, fuel prices in India have only been going up steadily and this is on account of the constant hike in excise duty by the Govt. Excise duty has been hiked not once or twice but 12 times in the past four years! 

The Modi govt gets Rs.10/litre more than the UPA govt on petrol and gets Rs.11/litre more on diesel. To put this in perspective, excise duty on petrol rose over 105% and that on diesel rose over 240%.

More than the falling rupee, which also directly impacts the fuel price, it is this taxation that has burdened us today. Shockingly, taxes make up for over 50% of the price that we pay for the fuel. This sounds so familiar – exactly why we pay so much for our airline tickets.

The fuel tax is a percentage of the selling price and that means as prices go up, Govt earns more. And along with the Govt, others who make merry with the rising petrol/diesel price are the petrol pump owners or dealer too. Point to note here – central excise duty is fixed but VAT changes in each State.

The petrol/diesel price breakup consists of four parts –

1: Dealer commission (Rs.3.63/litre) – this is what OMCs pay to petrol pump dealers

2: State tax which is VAT (Rs.39.12/litre)

3: Central tax which is excise duty (Rs.19.48/litre)

4: Price of petrol to dealer or pump owner (24.49/litre) – the price which OMCs charges its dealers.

Currently, the Centre currently levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, States levy Value Added Tax (VAT) which varies state-to-state.  Mumbai levies the highest VAT of 39.12% on petrol and VAT on diesel is highest in Telangana at 26%.

And if we take a sum total of the tax on petrol, it comes at a staggering 45-50% while that for diesel stands at 35-40%. Now one understands why GST on fuel never got levied – the highest slab in GST is at 28% and currently the Govt is earning more than double; so why will they suffer a loss because we are suffering? If prices were bought under GST, at the highest 28% slab, cost of petrol would be Rs.48.59. Almost half of what we pay today.

So let us not blame the depreciating rupee and rising crude prices. It is politics and politics only which is making life so miserable for us Indians. Understand the math and realise that we are paying every single day through GST, fuel taxes, surcharges for all that which the Govt spends.

Arun Jaitley has ruled out a cut in excise as economically, the picture will not look good on the fiscal deficit front. With GDP at 8.2% and with election round the corner, can they afford to present anything untoward in the macro-economic numbers? Yes, the States can reduce VAT but that too rarely happens. Thus politics is running our economics but who cares?

The sad truth is that petrol and diesel are the biggest cash cow for both State as well as Central Govt. Ironically, neither the State nor the Center is able to generate enough money through investments and taxing has become the only way to feed the vote banks while following the subsidy policies.