Half-baked fuel deregulation

Governments have regularly reiterated their commitment to deregulate the prices of petrol and diesel to lower the subsidy burden and ease the pressure on India’s fiscal deficit. After years of dithering, a start was made in June 2010 when petrol prices were freed and oil marketing companies (OMCs) could revise prices based on international crude oil prices every fortnight. Meanwhile, starting January 2013, diesel prices were raised by 50 paise per litre every month and fully deregulated in 2014. Last June, OMCs began tweaking fuel prices every day in tandem with global trends.

But moving away from the administered prices of fuel has been a half-baked affair. Deregulation meant that consumers would pay the actual price of petrol or diesel with no cushion against global price spikes, like in 2008 when prices touched nearly $150 a barrel. As a corollary, consumers were to gain if global oil prices fell.

But that hasn’t been the case. Since November 2014, central excise duty on diesel and petrol has been steadily increased through over half-a-dozen revisions. Since 2015-16, the Centre has been raising nearly ₹2.5 lakh crore annually through these higher duties. States also levy value added tax at rates as high as 40 per cent. The only reduction in excise duty was made last October — a meagre ₹2 per litre. Budget 2018-19 abolished the ₹6 per litre additional excise duty on petrol and diesel and cut the basic excise duty by ₹2 per litre only to swap that with a road and infrastructure cess of ₹8 per litre. For the consumer, this rejig didn’t mellow prices though the petroleum minister once argued that taxes are being raised when prices are low in order to protect consumers when prices go up.

Revenues are essential to fund expenditure. To an extent, higher taxes on petrol and diesel are justified given their impact on the environment. Yet, deregulation of fuel prices should also lead to consumers benefiting from low global prices.

Senior Assistant Editor

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