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BJP hiked excise, UPA hiked subsidies

Modi’s oil taxes are undoubtedly higher than Manmohan Singh’s, but keep in mind the much higher subsidy burden under the UPA

By getting caught in this fight over who raised taxes by a greater amount—the Bharat Bandh called by Opposition parties was about this excessive taxation by NDA-2—the BJP failed to make the larger point about why its taxation was justified.

Given how it is obvious petroleum excise duties during the Modi regime are so much higher than those during the Manmohan Singh period, it is not surprising BJP got trolled for the “Truth of Hike in PETROLEUM PRICES” graphic the party tweeted. The graphic (see top one) showed petrol prices as rising the least during the NDA-2 tenure—street prices rose 20.5% between NDA-1 and UPA-1, 75.8% between UPA-1 and UPA-2 and 13% between UPA-2 and NDA-2.

Apart from the fact that the 13% hike looked like a 13% fall in the way the graphic was presented, what the BJP ignored was the fact, pointed out by the Congress party in its tweets, that crude oil prices fell dramatically during this period; the 13% hike in petrol prices took place at a time when crude oil prices fell 33%; of course, once you take into account the 24% fall in the value of the currency during this period, the effective fall in crude oil prices was a lower 18% or so.

By getting caught in this fight over who raised taxes by a greater amount—the Bharat Bandh called by Opposition parties was about this excessive taxation by NDA-2—the BJP failed to make the larger point about why its taxation was justified. At a time when private investment was collapsing, as it was during UPA-2, NDA-2 had no option but to revive public investment such as that in roads and railways; and the only way to fund this was by hiking petroleum taxes significantly, and to earmark a large part of this for infrastructure through a cess. So, road building rose from 4,260 km in FY14 to 9,829 km in FY18 and railway capex from Rs 67,432 crore to Rs 131,000 crore in the same period.

Nor did the BJP take up the arguments made by finance minister Arun Jaitley some months ago—he had dismissed the chorus for a cut in central excise duties on petrol/diesel by characterising this as a ‘trap’ designed to ‘push India into an unmanageable debt’. After all, of the impressive 1.5 percentage point increase in the tax-to-GDP ratio since NDA-2 came to power—from 10.1% in FY14 to 11.6% in FY18 and a projected 12.1% in FY19—almost half (0.74% of GDP) came from the increase in petrol/diesel excise duties. Had this not taken place, the NDA’s FY18 fiscal deficit would have been 4.24% of GDP, not too different from what it inherited from UPA-2 in FY14.

Indeed, as FE has pointed out before, the chorus over NDA-2’s supposed tax-gouging ignored the fact that state governments have earned a lot more than the Centre since, while the Centre’s tax was fixed at Rs 19.48 per litre of petrol and Rs 15.33 for diesel, VAT collections by states rise with each hike in oil prices—or fall in the rupee—since they are ad valorem; in FY18, a cut in central tax levels resulted in oil excise revenues falling by 5.6% while state VAT revenues rose 10.6%.

Matters get worse when you take into account the fact that 42% of all Central taxes get shared between all the states of India. Take petrol in Delhi where the excise collections are Rs 19.48—Rs 8 of this is the cess that is not shared with the states—and VAT is Rs 17.16 per litre. This means the states also get Rs 4.82 of the central excise, taking their total revenues to Rs 21.98 per litre; the Centre gets a much smaller Rs 14.66! And yet, no one stops a moment before accusing NDA-2 of tax-gouging.

Nor do things stop here. One of the reasons why the UPA was able to not pass on all the oil price hikes to consumers was by getting oil PSUs to fund them or to simply add to subsidies. So, instead of looking at just the excise duty collections —this shows a 2.5 times hike between UPA-2 and NDA-2 (see second graphic) on average — as the Congress party has, you have to look at the total of excise duty and such ‘under-recoveries’. Once you do that, the equation changes significantly. This time around, the effective taxation during NDA-2 was just a fifth more than during UPA-2; that is still higher, but definitely worth it given what was achieved in terms of greater public sector capex.

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