Govt must cut fuel taxes since businesses, consumers pinched hard

The minister claimed the revenues would be allocated for infrastructure and other developmental expenditure; that is a weak argument if ever there was one.

The deal struck over the weekend between OPEC and its allies will see the supply of crude oil increase by 400,000 barrels per day (bpd); output will be raised starting August; so, that is two million bpd by December. The enhanced level of production is expected to continue until all of the 5.8 million bpd of halted production has been revived. Given Brent was expected to top $80 per barrel soon, and probably move on to $100, the announcement comes as a huge relief; more so for big importers like India.

In recent times, however, the Centre and the states have been as much to blame for high local prices of petroleum products. As is known, the duties on petrol and diesel account for about 60% of the price at the pump. In Delhi, for instance, of the pump price of Rs 101.80, the share of the states is 23% and that of the Centre is 32.2%; indeed, neither the Centre nor the states have trimmed levies despite prices of petrol and diesel having skyrocketed.

The effective tax burden—Rs 60 on the price of the product of Rs 40—is effectively a staggering 150%. Revenues appear to be their sole concern at a time when the pandemic has dented tax collections. However, the rising prices of diesel have driven up the cost of a host of goods and are stoking inflation. This is why, even as it negotiates prices of crude oil imports with supplying nations, the government must lower taxes on auto fuels—at least on diesel.

Rameswar Teli, minister of state for oil and gas, said in Parliament on Monday that the government has been talking to OPEC and other nations to be able to procure crude oil at affordable prices. Such negotiations will, no doubt, benefit the exchequer but it is equally important that the Centre sets an example and lower the excise duty, currently at Rs 32.90. Its revenues from such levies have gone up multi-fold in the last 6-7 years. In FY21, the Centre garnered Rs 3.71 lakh crore via excise duties on petroleum products while the states collected some Rs 2.02 lakh crore. In FY20, the Centre had mopped up Rs 2.23 lakh crore, and the states raised Rs 2 lakh crore.

It may be true the pandemic has hit revenue collections, but that cannot be an excuse for taxing consumers at such high rates. The minister claimed the revenues would be allocated for infrastructure and other developmental expenditure; that is a weak argument if ever there was one. There is no dearth of funds for infrastructure projects.

There is plenty and more with lending institutions like NIIF and others. It is merely that these have not been put to work. Instead, the government needs to immediately support producers who are struggling because consumption has fallen off so sharply. Consumers need immediate relief from high prices of basic consumables. Consumption is already very weak; even in Q4FY20, ahead of the pandemic, private final consumption expenditure (PFCE) grew at a miserable 2% year-on-year, the slowest in some 31 quarters. PFCE contracted in the first three quarters of FY21, understandably, before recovering to 2.7% y-o-y in Q4FY21. Given the government has provided very little direct stimulus since the pandemic, the very least it can do is to help the common man by lowering levies on diesel.