Modi Wasted Lower Crude Price Period


By Sunil Dang

The recent spike in crude prices is attributed to series of factors including OPEC production cut and geopolitical situations in countries like Venezuela, Libya, Nigeria and Iran. But, there are some domestic angle involved in this skyrocketing fuel prices, such as, heavy taxation. It would be interesting to know for the readers that in India, there are around 93 percent cumulative taxes on petrol and near 68 percent cumulative tax levied on diesel. Around 47 percent of the retail petrol price and roughly 40 percent of retail diesel price are due to taxes levied by centre and state government. The central excise is now 25.4 percent of the retail price of petrol in Delhi while state value-added tax (VAT) share is 21.3 percent. People are paying these taxes to both state and the central government. As global oil prices continues to hit the roof, neither Centre nor state government seemed to be opting for an immediate cut in the excise duties on petrol and diesel whose prices have reached new highs. It is keen to take the state governments on board for a plan to bring these fuels under the goods and services tax (GST).

Ironically, the central government and some of the opposition parties are finding long-term solution to the problem of fuel price hike by putting the entire range of petroleum products under the purview of GST. But, in my view, even a switch to the highest GST rate of 28 percent won’t suffice to equate tax revenue with the current arrangement, leading to revenue loss for theGovernment. Apart from the rising global crude price and the assorted taxes levied by the Centre and states, increasing dealer commissions too have inflated the retail prices of auto fuels. For instance, when  the average retail selling price of diesel in Delhi was Rs 57.20 a liter in May 2014, the dealer commission was Rs 1.19 per liter or 2 percent of the retail selling price; in May 2018, the fuel’s retail price in the city is Rs 67.77 a liter (average) and the dealer commission is Rs 2.53 a liter, or 4 percent of the retail price. The commission is clearly increasing faster than the overall price rise. It is estimated that every $1 increase in crude price demands an increase of around 63 paisa per liter in the prices of both diesel and petrol, and a Re 1 depreciation against the dollar requires a 50 paisa increase in the prices of these fuels.

When the Modi government took over, global crude oil prices were crawling below $25 per barrel and on numerous occasions, Prime Minister Modi was found claiming  ‘being lucky’ for the crude oil priceshad crashed around the time he came into power. .  Taking advantage of the global crude oil price swing, the Modi government used the surplus money which Indian government earlier used to spend on oil subsidy to curtail its fiscal deficit. In other words, the government did not pass on the benefit of the tumbling crude oil prices directly to the consumers.  However, now when the prices have started to scale up, they have chosen to increase the fuel prices rather cut the taxes levied on it. Here, I would like to remind both Narendra Modi government and my readers that similar scenario was there when Rajeev Gandhi took over. At that time global crude oil prices were at its lowest levels and rather decreasing the petroleum products prices, Rajeev Gandhi decided to create an oil pool account that would be used when crude oil prices would soar. This oil pool account became quite handy when the Gulf War happened in between August 1990 to Feb 1991. In that period, crude oil prices skyrocketed and the oil pool account was used by the then central government to provide relief to Indian consumers. Had Modi learnt from this successful experiment of Rajeev Gandhi, this price rise in crude oil could have been countered with ease.