The record rise in petrol and diesel rates has been a major concern for the oil ministry ahead of the Union Budget as much as it has been troubling the common man of the country. Petrol price has firmed up by up to 5 per cent over the last two months alone, while the rise in diesel rates has seen a staggering 10 per cent in the same period. India has the highest retail prices of petrol and diesel among South Asian nations, with taxes amounting to about 40-50 per cent of the pump prices of the fuel. The government has been under extreme pressure after facing flak for rising retail prices of petrol and diesel to a record level while the soaring prices are sending daily commuters into a tizzy. A panicky oil ministry has sought reduction in excise duty on petroleum products, which the Union finance ministry may not oblige to given the financial headwinds of the government. Implementation of GST has already burnt a hole in the government balance sheet in the first year of its implementation. Also, the coming budget being the last full-scale budget of the NDA government before the 2019 general election, the latter won’t be willing to pare cost. Further, the clamour of the oil ministry to include petroleum products under the GST may not find favour with state governments. In FY 2017, the entire petroleum sector generated approximately Rs5.2 trillion, or 81 billion dollars, for the Centre and the states. Even BJP or BJP-led governments in states may not be keen to bring it under the GST purview as it would mean a major cut in the state governments’ revenue collection.
Last October, the government had cut excise duty on petrol and diesel by Rs2 per litre, at a time when petrol prices had touched Rs76 in the state. Post this reduction, the Centre is collecting excise duty of Rs19.48 per litre on petrol while on diesel it is Rs15.33 per litre. Other than this, petrol price in each state is affected by state VAT, dealer commission and freight charges. Since July last, petrol and diesel prices are being set every day based on international crude price and the rupee-dollar exchange rate. Although the Indian rupee has appreciated in the recent past, international crude prices have also surged, owing to production cut and global geopolitical risks. From near $46 per barrel, Brent crude (which is a benchmark for India’s crude basket) price has surged to $68.85 per barrel. In the last two months alone, Brent crude price has gone up by nearly 10 per cent. In the given scenario, there is no quick-fix solution to tame the spiraling oil price. Even if the finance ministry allows a reduction in excise duty, this is not going to be a lasting solution. The Centre is likely to announce sops for electric vehicles (EVs) and hybrid cars to reduce dependence on fossil fuel. The government may be exploring options to reduce tax on EVs and altering the electricity Act to allow entities other than power distributors to set up charging points for the cars. Other than reducing oil imports, it would also cut down on pollution. The GST Council may be asked to lower taxes on electric and hybrid cars. State governments may also be urged to either waive or lower the road tax for electric cars. At present, EV sales account for less than a percentage point of India’s passenger car market owing to the prohibitively high cost. Automobile companies should be encouraged to invest in building infrastructure to allow more EVs on Indian roads. Other than reducing taxes on EVs, the government should set up more EV charger points in the country under PPP mode. India has only about 500 public EV chargers by the end of 2017 compared with about 58,000 petrol stations. In contrast, China had about 2,15,000 charging points installed by the end of 2016. It is high time we thought seriously about an alternative fuel.
