Economy

‘GST on auto fuels will aid oil firms, customers’

Our Bureau New Delhi | Updated on July 10, 2020 Published on July 10, 2020

Bringing petrol and diesel under the Goods and Services Tax (GST) regime will help retail consumers, commercial entities and oil companies. The fixing of a GST rate on auto fuels will also have a tempering effect on prices of these essential commodities.

(Clockwise from top left) Richa Mishra, Senior Associate Editor, The Hindu BusinessLine; Ajay Arora, Partner & National Leader - Oil & Gas, EY India; Praveen M Khanooja, Director General, Petroleum Planning & Analysis Cell; Mukesh Kumar Surana, CMD, HPCL, and Sanjiv Singh, former Chairman, IOC, at BusinessLine’s Knowledge Series Webinar on Fuel Prices on Friday

 

This was the consensus at the BusinessLine Knowledge Series webinar on Fuel Prices, How High is too High? moderated by Richa Mishra, Senior Associate Eitor and Chief of Bureau-Delhi, The Hindu BusinessLine.

The session started with a quick poll asking attendees if they thought that the government keeping fuel prices too high was fair on them.

Overwhelmingly, 68 per cent of the recipients felt that the current pricing of auto fuels was unfair.

Responding to questions on how the pricing of petrol and diesel works in the country, Director-General, Petroleum Planning and Analysis Cell, Praveen Khanooja said there have been multiple reforms to deregulate auto fuel prices.

“Today the domestic product prices are dictated by variations in the international market and consumers,” Khanooja said.

But how much do these international price movements impact domestic petrol and diesel prices. Elaborating on the same, Sanjiv Singh, former Chairman of Indian Oil Corporation Ltd said, “At the current price of petrol and diesel, when international product prices fall, they have an impact of less than 30 per cent on the domestic prices.”

This is because over 60 per cent of the prices of petrol and diesel is collected by the State and Central governments in the form of taxes, Singh said.

Explaining the current pricing strategy of domestic oil companies and the reason why price revisions were moderated for 82 days during the lockdowns, Mukesh Kumar Surana, Chairman and Managing Director of Hindustan Petroleum Corporation Limited said, “There were unnatural spikes and lows and we do moderate the prices to a certain extent but over a period of time the prices do get aligned to international price trends.”

Seconding the need to moderate price revisions, Singh said, “Presently the spread (price difference) between diesel and crude oil is negligible in the international market. This would mean that there is no gain to be made for the refinery for processing crude oil into products. This is abnormal.”

Despite the higher prices, petroleum product sales have been recovering from lows during the lockdown in May. Petrol sales stood at 1.77 million tonnes and diesel at 5.50 million tonnes in May, which rose to 2.28 million tonnes and 6.30 million tonnes for petrol and diesel, respectively, in June.

Low prices and recovery

Auto fuel consumption remained lower compared to June 2019, with petrol sales at 2.64 million tonnes and diesel at 7.45 million tonnes that month. When attendees were asked if they thought economic activities would get a boost from lower auto fuel prices, majority of the participants agreed in favour of lowering petrol and diesel prices for boosting economic recovery.

Ajay Arora, Partner & National Leader, Oil & Gas, EY India said the consumers and industries are looking for a reasonably transparent formula that can help them predict the price trends when crude price is within a certain range.

But lowering product prices does not seem possible and reworking the taxation structure seems to be the more viable option. Singh said, “GST will help large consumers, and oil companies that can avail of a tax credit against their sale and purchases of petrol and diesel.”

Arora also said bringing petroleum products under GST will benefit the consumers across the value chain. While Surana said that everyone in the industry favours bringing petroleum products under the ambit of GST.

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Published on July 10, 2020
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