In the last few weeks, there’s been much talk about importing crude oil from Russia at a discount. But will this soften the retail prices of petrol and diesel in the country, which hit a high of ₹116.72 a litre and ₹100/litre, respectively, in certain cities on March 31.

For the common man, fuel is on fire yet again. And what are the Central and State governments doing? They are closely monitoring the global energy markets situation in the backdrop of evolving geopolitical events.

Should India get too excited about the Russian discount, and not bother about domestic retail pricing?

According to Petroleum Planning & Analysis Cell (PPAC), India’s major sources of crude oil are Iraq, Saudi Arabia, the UAE, Nigeria and the US, and Russia accounted for less than one per cent of the total crude oil imported in 2021-22 (till January). Import of crude oil is carried out by Indian oil and refining companies in the public and private sectors from diverse sources through business-to-business arrangements, based on techno-commercial considerations and domestic requirements.

The price of Indian basket of crude oil as on March 10 was $116.73 a barrel and expectations are that the average for the month will be around $110 a barrel.

Govt action

So what is the government doing to cushion the impact of this volatility in international prices at the retail end? According to the Ministry for Petroleum and Natural Gas, the Centre is ready to take all appropriate action, as deemed fit, including supporting initiatives for releases from Strategic Petroleum Reserves, for mitigating market volatility and calming the rise in crude oil prices.

The government has also been taking up the issue, bilaterally, with crude oil producing countries to convey India‘s serious concerns over price volatility and strong preference for responsible and reasonable pricing for consumer countries.

But, has it brought down the fuel bill for the consumers? No, it hasn’t.

Technically speaking, the prices of petrol and diesel at the retail end are market determined. The public sector oil marketing companies decide on pricing of petrol/diesel in line with their international product prices, exchange rate, tax structure, inland freight and other cost elements.

For domestic LPG, the government continues to regulate the effective prices to consumer. The selling price and subsidy on domestic cooking gas change based on the product price increases/decreases in the international market and decision of the government on subsidy. The subsidy is credited to the bank account of eligible beneficiaries.

To cushion the impact of steep prices, an argument gaining ground is that the government of the day needs to focus on tax rationlisation of these products including bringing them under GST. Questions are being asked whether the government has any plan or initiative to bring crude oil, natural gas, diesel, petrol and aviation turbine fuel under GST umbrella, and, if not, the reasons?

The officials in the government also point out that the Central Excise duty on petrol and diesel was reduced by ₹5 and ₹10 a litre, respectively, effective November 4, 2021. The measure was aimed at giving a further fillip to the economy and to boost consumption and keep inflation low, thus helping the poor and the middle class.

They also argue that the excise duty rates on petrol and diesel have been calibrated to generate resources for infrastructure and other developmental items of expenditure keeping in view the present fiscal position. Following this reduction in excise duty, many States/UTs have reduced the VAT on petrol and diesel.

According to critics, States as well as the Centre don’t need to do much to earn revenues from this category. “It is easy revenue, so why would anyone like to let go of it, especially in such adverse economic situations,” is the common refrain.

What about GST?

To one such question in Parliament, the Ministry had responded that Article 279 A(5) of the Constitution prescribes that the Goods and Service Tax Council shall recommend the date on which GST is to be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

Further, as per Section 9(2) of the CGST Act, inclusion of these products in GST will require recommendation of the GST Council. So far, the GST Council, in which the States are also represented, has not made any recommendation for inclusion of these goods under GST. Domestic LPG is covered under GST at a 5 per cent rate.

While most agree that the rate of GST on these products will be as high as 28 per cent, at least it will be a uniform rate. Today, the prices of petrol and diesel vary from market to market due to various factors like freight rates, VAT, local levies, etc.

However, there is also this argument that 28 per cent may not be enough, and to levy any other additional component will distort the purpose of GST. Therefore, a call for rationalising the current tax structure on these products is gaining ground. Will the governments, both at the Centre and States, oblige is a question that only our political masters can answer.

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