- The VAT cut in poll-bound Rajasthan will make petrol and diesel cheaper by Rs 2.50 per litre
- But it will cost the state exchequer about Rs 2,000 crore in revenues, nixing a plan to keep the fiscal deficit down
Behind the bluster of Prime Minister Narendra Modi’s new slogan of invincibility and resoluteness, ‘Ajay Bharat, Atal Bhajpa’—proclaimed at the BJP’s national executive meeting last weekend—lay the ruling party’s calculated decision to keep silent on the fuel price hike. While the opposition took to the streets, organising a Bharat Bandh on the issue, the BJP decided to keep things low key. There was no mention of spiralling fuel prices and the weakening rupee—issues that had brought most opposition leaders onto the same platform once again. Though the government tried to play down the bandh by a “disruptive opposition”, BJP sources say the party is definitely aware of the possible political fallout of rising fuel prices.
Outlook spoke to several BJP leaders to find out the strategy behind keeping a low profile when an all-out political war has broken out over the emotive issue. “The Centre can do little at this juncture. It is in no position to reduce excise duty on petrol and diesel in the immediate future. Taxes on petrol and diesel contribute a huge chunk to the government’s revenue. In 2017–18, the Centre had mopped up Rs 2.29 lakh crore from the excise duty on petroleum products. Funds are needed to implement crucial social schemes that the PM has announced, and there is no scope for any cut as of now. So it has been decided to let the states handle the issue as they think fit,” discloses a senior BJP leader.
The Centre gave the go-ahead to poll-bound Rajasthan’s chief minister Vasundhara Raje to cut VAT on petrol and diesel by four per cent. “Considering the fiscal situation of the state, it is not a very prudent move by the CM. However, with the assembly elections around the corner, she cannot take a chance. The party is anyway on a sticky wicket in the state,” the leader explains. The VAT cut in Rajasthan will make petrol and diesel cheaper by Rs 2.50 per litre, but will cost the state exchequer an estimated Rs 2,000 crore in revenues. Rajasthan had a fiscal deficit of 3.5 per cent in 2017–18, and it had planned to keep it down to three per cent in 2018–19.
“That doesn’t seem possible now. Vasundhara is anyway in a populist poll mode. She has given cell phones to all Bhamashah cardholders [a scheme to transfer benefits directly to women recipients], and doled out interest-free loans to small-time artisans. The economy doesn’t seem to be her primary concern right now,” says another BJP leader.
After Rajasthan cut VAT, Andhra Pradesh chief minister Chandrababu Naidu followed suit by announcing a cut of Rs 2 per litre. Naidu admits that this will add a burden of Rs 1,120 crore to the state exchequer, already affected by a 3.4 per cent fiscal deficit. However, he is willing to go down the populist route to keep the electorate happy, and is also looking at taking on the TRS in Telangana along with the Congress and the Left.
“There is no scope for any cut as of now. So it has been decided to let the states handle the issue as they think fit,” discloses a senior BJP leader.
West Bengal’s Mamata Banerjee, meanwhile, reduced levies on petrol and diesel by Re 1 a litre—while claiming that the state was repaying a Rs 48,000-crore loan annually. She charged the Centre with complete economic mismanagement and demanded that central cess be immediately withdrawn. Her finance minister Amit Mitra says the Centre should have set-up a fuel price stabilisation fund with the cess that it is collecting. “The Centre raised excise nine times in four years to shore up its finances even when the global oil prices were down,” he tells Outlook. According to him, when crude prices are low, the cess should be used to create a fund that can be used to stabilise prices later when crude prices go up. The government failed, and INStead kept increasing prices even when crude prices were low, and did not transfer the benefit to consumers, he says.
In fact, the only time the Centre reduced excise duty by Rs 2 a litre was in October 2017, in the run-up to assembly elections in Gujarat and Himachal Pradesh. “Maybe the Centre will go in for a cut as elections come closer. As of now, the social schemes aimed at the poor need to be financed,” says a senior petroleum ministry official.
Petroleum minister Dharmendra Pradhan, meanwhile, could not be contacted. BJP sources confirm that he is under pressure from the party to find some way by which some relief can be given to the common man. Party president Amit Shah called him for a meeting on September 10 to discuss the issue. “The party is definitely concerned about the issue with Lok Sabha polls not very far off. The middle class’s anger cannot be ignored. It is a very precarious situation for the government,” says a party general secretary.
The BJP has reached out to its allies to help handle the situation on the ground, and not go public with their discontent. This came after UP minister and chief of the BJP-allied Suheldev Bharatiya Samaj Party (SBSP), Om Prakash Rajbhar, publicly warned the ruling party that the country has a history of governments falling because of price rises. “In our country, there is a history of governments falling due to price rise. The people of the country have the real power. Whenever there is rise in petrol or diesel prices, the party in power has to suffer as this affects traders, youths, farmers and the poor,” Rajbhar tweeted.
Sources in the BJP and government claim they are working out some mechanism which is likely to be put in place in the near future. Law minister Ravi Shankar Prasad says the rise in fuel prices is momentary and blames OPEC for the surge in international prices of crude. “We are standing with the people in their concern, but the solution to this problem is not in our hands,” he says, citing problems all over the world. “There is political instability in Venezuela. There are US sanctions on Iran. Oil production in the US has decreased...We have to depend on imports for oil,” Prasad told media persons after the opposition’s Bharat Bandh. When asked whether the government was planning to bring petroleum products under GST, Prasad said the Centre could not take the decision unilaterally and the states had to be on board. Amit Mitra reminds the government that “most of the finance ministers are from the BJP.” What is stopping Dharmendra Pradhan from telling his party finance ministers in states to come on board, he asks.