Last year in October, when petrol price in Mumbai had hit Rs 79.99 per litre, the government announced a Rs 2 per litre excise duty cut just in time, which led to roll-back of the price before it could hit Rs 80. This time, the psychological mark is Rs 90 a litre. The petrol price in Mumbai on Saturday was Rs 89.80 a litre, just 20 paise short of hitting Rs 90.
However, this time it is highly unlikely that the central government will announce any relief. The oil companies in the past week have hiked petrol prices by 6-28 paise. If tomorrow the hike is 20 paise or above, the mark will be breached. Oil companies revise fuel prices every day on the basis of market fundamentals. In some Maharastra towns, petrol is already selling above Rs 90 a litre.
The fuel prices are highest in Mumbai due to high Value Added Tax (VAT) imposed by Maharashtra. News agency PTI reported that the state is vying increase in excise duty on Indian-made foreign liquor (IMFL) to create fiscal space for providing some relief on fuel tax. Fuel and liquor have been kept outside the ambit of the Goods and Services Tax (GST)
So far, Rajasthan, West Bengal and Karnataka have cut VAT by Re 1-Rs 2 on petrol and diesel prices. As per an SBI research report, since VAT is applied on fuel ad-valorem, states gain additional revenue when oil prices go up. Due to this additional revenue, the states are capable of giving tax relief of up Rs 3.2 a litre without compromising with their fiscal arithmetic.
Meanwhile, in New Delhi, petrol is retailing 12 paise higher at Rs.82.44 per litre, while diesel continues to be sold at Rs 73.87 per litre.