With record fuel prices creating a “crisis situation”, the government will work on an appropriate solution to ease the burden on common man, top officials said. While Oil Minister Dharmendra Pradhan stated that he has aired concerns about high oil prices, a senior official said the government will come out with “some steps” this week to deal with record high petrol and diesel rates. “I have loudly spoken about concerns (about high oil prices),” Pradhan said, adding that “appropriate steps” will be taken. He did not elaborate. Indian Oil Corp (IOC) Chairman Sanjiv Singh said there is no direction from the government for moderating prices and the three week hiatus before the Karnataka poll was to avoid sharp spike in retail rates.
“We believed that fundamentals did not support such sharp spikes witnessed so we decided to moderate prices,” he told press conference on the fourth quarter earnings. Asked what changed their mind, he said fuel retailing runs on narrow margins and no company can continue to sell at below cost for long.
The government may not rely only on cutting excise duty, which makes up for a fourth of the retail selling price, said the official cited earlier, but he too did not elaborate on the various steps being considered. “Rising fuel price is a crisis situation for government and it has to be handled with combination of steps. Finance ministry is consulting the petroleum ministry on rising crude prices,” he said.
More than a week after the state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have touched record highs. Petrol costs Rs 76.87 per litre in Delhi and diesel costs Rs 68.08 a litre. In last nine days, petrol price has risen by Rs 2.24 a litre and diesel by Rs 2.15. Rates vary from state to state depending on the incidence of local sales tax or VAT.
The prices in Delhi are the cheapest among all metros and most state capitals. The official said the government has to be mindful of its fiscal maths while dealing with the option of cutting excise duty. “We cannot rely on excise duty cut alone, although I am not ruling out a possibility of cutting excise duty. We have to be mindful of any fiscal impact of any excise cut on fuel,” the official said.
Both the Centre and states, where VAT makes up for 20-35 per cent of the retail cost and have gained from the rising oil prices, need to take measures, he said. “Some steps to deal with rising oil prices are likely to come this week,” he added. The rupee, which has fallen to 16-month low of 67.97 against the US dollar, is also playing a role in high oil bill, he said.
IOC Chairman said the companies have freedom to revive prices and they took a call in the best interest of consumers. The central government levies Rs 19.48 a litre of excise duty on petrol and Rs 15.33 per litre on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up. In Delhi, VAT on petrol was Rs 15.84 a litre, and Rs 9.68 on diesel in April.
Today it is Rs 16.34 on petrol and Rs 10.02 a litre on diesel. Every rupee cut in excise duty on petrol and diesel will result in a revenue loss of Rs 13,000 crore. The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre. Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT.
Just four of them — Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh — reduced rates while others including BJP-ruled ones ignored the call. In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped government’s excise mop up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.