From the Viewsroom

A farce called free pricing of fuel

Anand Kalyanaraman | Updated on June 17, 2020 Published on June 17, 2020

Preventing pass-through of lower prices to customers is unfair

Heads I win, tails you lose. That seems to be the approach of the government towards customers when it comes to petrol and diesel pricing. When global crude oil prices crash, the Centre and many States promptly raise taxes to soak the gains, preventing pass-through of lower cost to customers. But when oil prices rise, there is little or no reduction in taxes, fuel prices increase, and customers bear the brunt.

Consider the recent goings-on. After a break of more than 80 days, public sector oil marketing companies (OMCs) — Indian Oil, HPCL and BPCL — restarted daily pricing of petrol and diesel from June 7. And in each of the 10 days since then, the fuels’ prices have risen — in total by ₹5.50-6 a litre. Petrol and diesel prices are now at their highest levels in more than a year and half, despite oil trading far below the levels then.

During the crude crash over the past few months, the OMCs had frozen petrol and diesel prices from March 16; so, no gain for customers. Meanwhile, a cash-strapped Centre reeling from the Covid-19 blow raised excise duty on petrol and diesel by as much as ₹13-16 a litre; many States too increased their sales tax/VAT. In recent times, oil prices have risen sharply from their April lows. But now, there is no cut in taxes, and oil companies are religiously hiking petrol and diesel prices. The script is similar to what happened between 2014 and 2018.

Petro-taxes are a cash cow for the Centre and the States, and once these go up, they seldom come down. Especially true in the current times when the exchequer has taken a big hit due to the lockdown.

But the governments should realise that customers too are facing a cash crunch. Lay-offs, pay-cuts and loss of business income have been widespread. Burdening customers with higher fuel prices is unjust and insensitive. It also runs the risk of stoking inflation, potentially hampering the RBI’s efforts to cut rates and propel economic growth. A farce is being made of the supposed market pricing in petrol and diesel — with customers almost always at the receiving end. There must be a balance in which everyone — customers, oil companies and governments — benefits.

Published on June 17, 2020
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