1. Don’t rue high petrol, diesel taxes. That money is coming back to you as much more

Don’t rue high petrol, diesel taxes. That money is coming back to you as much more

The increased government expenditure, especially towards building roads and railways, would eventually come back to the public as being much more beneficial, accounting for the multiplier effect.

By: | Published: September 15, 2017 1:31 PM
There’s a growing demand from several sections of the society to cut taxes on petrol and diesel, which aggregate to as much as over 100% in some cases. (Image: Reuters)

The clamour over rising petrol and diesel prices has grown to a fever pitch over the last few days, with TV news channels running stories of hurting consumers interests all day long, and senior politicians, including BJP’s own Subramanian Swamy, also raising voices in favour of controlling rising fuel bills. Indeed, retail fuel prices are hurting, and the daily minor increments have seemingly failed to hide the overall jump over the last few weeks, what with the news media, FE Online included, bringing it prominently to the notice of the people.

Crude shock

Amid the continuing rally, the retail fuel prices have hit three-year highs in several cities across the country. The price of petrol in Mumbai has risen to Rs 79.50 per litre, a level last seen in August 2014 in the country’s financial capital. Similarly, the price of diesel is at a three-year high in the metro cities of Kolkata and Chennai at Rs 61.40 and 61.87 per litre respectively. Since July 1, petrol price in Delhi has risen by Rs 7.34 per litre to Rs 70.43 per litre today (Friday, 15 September, 2017), broadly in line with the over 12% rise in the prices of the Indian basket of crude oil in rupee terms during the same period.

Also read: Petrol, diesel prices at three-year highs and climbing; have you felt the pinch yet?

While the government has sought to explain that retail fuel prices are linked with the global crude oil prices and international markets, there’s a growing demand from several sections of the society to cut taxes on petrol and diesel, which aggregate to as much as over 100% in some cases.

Public spending

Oil Minister Dharmendra Pradhan was non committal on any such move, when asked earlier this week, saying that the high tax collections from retail fuel sales have helped the administration spend on infrastructure and welfare of the people. Albeit, he favoured moving petroleum products too under the ambit of GST.

Also read: Government won’t intervene to cut petrol, diesel prices

Well, there seems to be enough evidence for Dharmendra Pradhan to back up his comments. The government expenditure has indeed risen over the last three years. The Financial Express wrote in its print edition this morning that while it’s easy to portray the government as tax-grabbing and not allowing consumers to benefit from lower crude oil prices, it is the sharp rise in oil revenues that allowed the big rise in government’s capital expenditure when most other growth drivers have all but collapsed.

Money multiplier

While the Centre has pushed up the excise duty on petrol by almost 150% since July 2014, it has also increased its capital expenditure. The Centre’s capital expenditure in the last financial year 2016-17 rose by a about a quarter, or by Rs 66,543 crore, from the previous year. In the previous financial year 2015-16, it rose by Rs 57,335 crore. Similarly, while the states increased their oil revenues by Rs 29,561 crore in FY17, they also raised their total expenditure in the year by Rs 2,63,900 crore.

Further, higher taxes on petroleum also helped keeping the fiscal deficit under control at the same time, else the signal to bond markets would have raised interest costs and negate a part of the increased government-capex. The increased government expenditure, especially towards building roads and railways, would eventually come back to the public as being much more beneficial, accounting for the multiplier effect. Although, it would be interesting to see how much of the increase in the government income from oil sector is actually being put to productive use through capital spending, and is not being frittered away on revenue expenditure.

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  1. J
    Sep 18, 2017 at 9:31 am
    If roads are built, they are charging exhorbitant tolls. So the money collected from selling fuel is not funding road development. If there is improvement to rail, then the train accidents wouldn't have increased, which cost Mr. Suresh Prabhu his portfolio (but for the accidents, I have high regards for his exemplarary administration). Airports and ports are nowadays privatised or are on PPP model. Even to use a toilet, one needs to pay. Then where are the tax monies going? May be for: 1. Writing off bad loans (I don't mean that of poor farmers or other poor people, upto 2-3 lakhs). Many of these loans are individually running into hundreds and thousands of crores with the loot shared between the defaulters and those who approve the loans. 2. Pampering those who earn from Government - their ries, benefits and free perks are increasing phenominally while the common people are deprived of a daily square meal. Remember, with GST, prices of all essential items have gone up!
    1. H K Doshi Doshi
      Sep 17, 2017 at 1:06 pm
      Economy shows sign of slowness, inflation is increasing , unemployment is increasing and hence higher rates of petrol , diesel are pinching to general public. This could also affect popularity of ruling party in near future if opposition party will make this issue aggressively in media.
      1. K
        kalicharan sharma
        Sep 16, 2017 at 12:09 pm
        Good exmple of sycophancy by author. Even dealer commision is incresed by two fold. So, delers can improve their home infrastructure. During freedom movement some poets were writting that British rule is good for India. During last BJP rule under Bajpayeeji, introduced toll tax. No of vehicles incresed by 10 times but still companies making road is hungry to fill their pockets. Looks like we are giving Jajia kar as Moughal king Aurangjeb was doing. Please stop this taxes or people will soon come on road and finish it.
        1. V
          Sep 16, 2017 at 3:17 am
          It's far more beneficial to the officials who line their pockets with bribes from contractors.
          1. A
            Sep 15, 2017 at 7:52 pm
            Despite of this hike in petrol, diesel, onion,tomato , foodgrains , lentils and all kinds of vegetables. We will still vote for Modi cause this hiked cost or cess or excise duty will go to the govt coffer and we will be rich again like pre-british era. And we do not need any black money from abroad, Hence please elect this govt again for next 10 years and we can relax for another 20 years.
            1. X
              Sep 15, 2017 at 3:01 pm
              please also include the expenditure incurred by PM during his foreign trips in the government expenditure
              1. Tushar Kanta
                Sep 15, 2017 at 5:08 pm
                MMS went on similar number of trips..It just wasn't highlighted..
                1. S
                  shubhankar banarjee
                  Sep 16, 2017 at 12:24 am
                  expenditure is same or lower than Mr Maun Mohan Singh. and No of trips are almost same, except Modi had focussed on rich western nations with high pitch tour MMS had focused on smaller traditional parterners of india
                2. Ramesh B Bhatia
                  Sep 15, 2017 at 2:50 pm
                  We understand increase in Petrol, Diesel price by Excise duty or C Tax etc will come to Govt Budget .That money will be used for country progress work. That is fine. What we see the Oil companies showing more and more profit they increase ry and perks of staff? So 30 of excess tax is used for increase in ries? Therefore it is better Govt must control That MRP (daily basis) ? funny thing is Daily increase or cost calculation looks foolishness? Crude is not purchased every day price ? it is mostly long term agreement for supply. So they can Fix the price when new crude is bought / new agreement or rate etc, and with fix formula of refinery cost etc. Govt must control use of FREE Petrol /Diesel in Govt Dept's , Ministers, etc? Must check actual delivery of crude from Ship (import) and must match delivery in Refinery etc ?
                  1. Uday Barad
                    Sep 15, 2017 at 2:16 pm
                    No.....this explanation is not acceptable to general public......!!! Govt must reduce duties on petrol and diesel as it is highest as compared to any-other nations in the world.....!!! Last time Onion prices had ruined Atalji's BJP govt....this time if prices of Petrol and Diesel are not brought in control Modi's BJP will suffer in 2019 general election.....!!!
                    1. Harvinder Maini
                      Sep 15, 2017 at 2:00 pm
                      Incapable BJP and company has so many excuses for their failures, but the people of India have not well understood them. Therefore, wait and watch till 2019 General Elections
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