FM Arun Jaitley rules out cutting excise duty on retail fuel prices

By: | Updated: September 20, 2017 4:33 PM

FM Arun Jaitley ruled out cutting excise duty on petrol and diesel and said excise revenue was needed to push public investment.

Arun Jaitley, AAP,  Deepak Bajpai, Delhi High Court, Arvind Kejrial, AAP leaders, DDCAFM Arun Jaitley ruled out cutting excise duty on petrol and diesel and said excise revenue was needed to push public investment. (Image: IE)

Finance Minister Arun Jaitley on Wednesday reiterated government’s earlier stand on the retail fuel prices and ruled out cutting excise duty on petrol and diesel, saying excise revenue was needed to push public investment. “We need excise revenues to push public investment, and if any state wants to reduce excise they can do so,” FM Arun Jaitley said.

The Finance Minister shifted the blame on crude prices that have gone up temporarily due to the hurricanes in the United States. “Crude prices are temporarily up on US hurricanes; expect prices to moderate,” he said while addressing a press conference after the cabinet meeting.

Arun Jaitley also said that rise in vegetable prices was a routine during monsoon. “Normal for vegetable prices to rise during monsoon,” he said.

Three-year high

Petrol and diesel prices have been surging sharply since June 16 after the dynamic daily pricing model for these fuels was introduced. Fuel prices have reached their highest in nearly three years now. Earlier, Oil Minister Dharmendra Pradhan had refused to intervene and control the oil prices and asserted that a cut in excise duties was “up to the Finance Ministry.”

Last week, the price of petrol in Mumbai had 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 had hit 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 had risen by Rs 7.34 per litre to Rs 70.43 per litre on September 15, 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.

Excise duty on retail fuel is a 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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