The stiff hike in central excise duty on petrol and diesel (nearly 60 per cent in the case of branded petrol and 20 per cent in the case of branded diesel) smacks of the ad hocism that characterises policymaking in petroleum. The move, which is expected to rake in ₹4,000 crore, is linked to government fears about overshooting the fiscal deficit target, which crossed the 90 per cent mark four months to go. What better sitting ducks than petrol and diesel? The present tax hike curbs the space for oil marketing companies to reduce prices in line with global trends. By interfering with market-based price determination, successive governments have gone back on their avowed commitment to oil decontrol. A road map for a globally aligned price for petro products, broadly laid down by three committees since 2006, involves a reduced reliance by the government on petroleum as a source of revenue. Central and State taxes on petroleum raked in ₹3 lakh crore in 2013-14. The only saving grace is the application of specific rather than ad valorem duties; the latter would have resulted in windfall gains along with the rise in prices, more than the additional ₹60,000 crore that the Centre and States picked up in 2013-14 over the previous year. It is time to put an end to such fiscal laziness as well as policy surprises; a formula-based change in levies, based on world prices, may work better.

Political opportunism has derailed the reform process in the case of kerosene and LPG. Subsidies on kerosene and LPG were expected to be phased out in three to five years after 2002, but we are nowhere near that. Falling global prices have led the Centre to announce a reduction of about ₹113 in the price of an LPG cylinder, while failing to pare the full subsidy amount of about ₹400 a cylinder. The reasons are not far to seek: LPG is largely used by the well-heeled, and with elections in Delhi around the corner, this constituency cannot be displeased. Under-recoveries on diesel, at about ₹62,000 crore in 2013-14, have mercifully disappeared. This has happened on account of falling oil prices and calibrated increases in diesel prices since January 2013 to negate years of populism. Petrol prices were freed in June 2010. But the opportunity to use subdued world prices to cut LPG subsidies, at about ₹46,000 crore last year, should not be missed.

Loading more taxes and duties on petrol rather than diesel is not a good idea. This has encouraged private diesel consumption. Cars and SUVs account for 27 per cent of total diesel use. Diesel use for agriculture purposes, in tractors and pumpsets, accounts for another 13 per cent. While correcting this anomaly, the Centre should encourage a shift to solar pumps and electric cars, in keeping with developments the world over. Market determined pricing and the pursuit of energy efficient practices are two sides of the same coin. If only policymakers could see things that way.

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