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Calls For Reductions In Excise Duty On Petrol Are Unrealistic

Taxes on oil provide for the state. Rise in global crude prices will have to be sat out.

Calls For Reductions In Excise Duty On Petrol Are Unrealistic
Down With It | Photograph by Getty Images
Calls For Reductions In Excise Duty On Petrol Are Unrealistic
outlookindia.com
2018-09-14T10:36:09+05:30

As the country braces for a gruelling election season, the Opposition called for a ‘Bharat Bandh’ on September 10 to pressure the gov­­e­r­nment over rising prices at petrol pumps.

Oil prices at home are the result of global prices and central and state taxes levied domestically. There has been extraordinary turbulence in these areas. World oil prices had reached a peak of $112 a barrel in 2014, before they began a precipitate fall, reaching below $30 in February 2016. This was due to a worldwide economic downturn and inc­reased US production due to the shale revolution, both of which led to an over-supplied market.

Principal world producers did not correct the market imbalance, focusing instead on retaining their market share and hoping that the low prices would make US production uneconomical. However, prices continued to fall, since US production weathered the low prices.

This finally compelled members of the Organisation of Petroleum-Exporting Countries (OPEC), led by Saudi Arabia, in late 2016, to work with major non-OPEC members, particularly Russia, to curtail production. Since early this year, oil prices have been going up steadily and have now stabilised at just over $75 a barrel.

The Indian government saw in the fall in oil prices an opportunity to correct the current acc­ount deficit by raising the excise duty on petrol, rather than pass on the benefit of low prices to the consumer. Thus, during the period of low oil prices (November 2014-January 2016), the government raised excise duty on petrol nine times, going from Rs 9.48 a litre to Rs 21.48, an increase of 226 per cent; excise duty on diesel went from Rs 3.56 to Rs 17.33, an increase of 486 per cent.

This approach makes economic sense. Central and state taxes on petrol and diesel add over 90 per cent to the dealer price of oil,...

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