ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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When Fuel Is on Fire

More than global oil prices, it is distortionary policies that make consumers pay through the nose.


The persisting upsurge of fuel prices across the country brings home the ruling government’s lackadaisical attitude towards the problems that commoners encounter due to the hikes. In the face of country-wide protests by the Opposition, the central government has shifted the onus of fuel price adjustment on to the state governments. Except for Rajasthan and Andhra Pradesh, which have announced price reductions of ₹2.5 and ₹2 per litre of fuel, respectively, no other state has responded yet. Even then, petrol prices in state capitals are hovering between ₹81–₹83 and ₹85–₹87 per litre, compared to nearly ₹90 per litre in Mumbai, which has the highest value added tax (VAT) on auto fuel.

Fuel price deregulations in 2010 and 2014 should have been meaningful had consumers been able to gain when global prices fell, just as they have to bear the brunt when the prices spike. But, the reality is otherwise. A back-of-the-envelope estimate is that with the addition of excise duty and VAT (nearly 50% of selling price) and dealer commission (at least 9% of the selling price), consumers end up paying double the price that upstream oil retailers charge from the dealers. While this huge burden of government taxes and duties makes consumers pay through the nose when global oil prices rise (currently to a record high of $80 per barrel since September 2014), it also prevents them from leveraging the benefits when prices are low. Recall that between November 2014 and January 2016, concurrent to a period when prices of the Indian basket of crude oil fell to never cross $60 per barrel, the government had raised excise duties nine times, leading to a hike in duty on (normal) petrol by roughly 150% to ₹19.48 per litre and that of (regular high-speed) diesel by 330% to ₹15.53 per litre. This helped the government’s excise mop up ₹2,42,000 crore in 2016–17 against a mere ₹99,000 crore in 2014–15. Moving away from administrative prices has definitely benefited the public exchequer.

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Updated On : 9th Oct, 2018
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