Petrol and diesel prices to be slashed, oil companies to share burden
Fuel prices are likely to be slashed by Rs 2 to Rs 4 in the next few days and a decision will be made after discussions involving the Prime Minister’s Office, the finance and oil ministries and state-owned oil marketing companies such as Indian Oil and BPCL, officials in the finance ministry said on Tuesday.
The officials, who spoke on condition of anonymity, said part of the cut would come from a reduction in state or central government duties on fuel and part from dealers taking a cut in their commissions and being reimbursed by the oil marketing firms.
Taxes account for between 37% and 47% of the retail price of fuel and dealer commissions between 3.8% and 4.8%.
“Measures will have to be taken in coordination by the ministries of finance and oil. This crisis has been created due to both a weakening rupee and rising crude (prices),” said a finance ministry official who did not wish to be named.
For every rupee cut in excise duty on petrol and diesel, there is a Rs 13,000-14000 crore hit to the exchequer.
In the last few days, fuel prices have touched record highs, with petrol costing Rs 76.87 per litre in Delhi and diesel Rs 68.08 a litre. In the last nine days, the price of petrol has risen by Rs 2.24 and diesel by Rs 2.15.
Oil marketing firms have increased prices on each of the nine days.
The finance ministry has prepared data on duties and taxes on fuel.
It has also worked out the math of the amount of taxes that are shared with states as part of the devolution formula and what goes to the exchequer. The central government levies excise duty on fuel and the states, Value Added Tax or VAT.
“We will have to be mindful of the fiscal impact of an excise duty cut. For relief to consumers, states will also have to cut VAT. We are in discussions with them,” said a second government official.
He added that while oil minister Dharmendra Pradhan will meet oil marketing companies on Wednesday, they have been insisting that all petro products be brought under the Goods and Services Tax.
From plunging to $26 in February 2016 before climbing back to around $78 per barrel on Tuesday, oil prices have defined volatility. The Indian government benefited from falling crude prices since November 2014 and shore up its finances by hiking excise duty on fuel nine times between November 2014 and January 2016. In the face of surging crude prices since December 2016, the government has slashed excise duty only once by Rs 2 in October 2017.
Criticising the government for the spiralling fuel prices, the Congress has demanded that petro products be brought under the Goods and Services Tax. States may not be willing to allow that because taxes on fuel account for 11% of their overall tax revenue.
“When crude prices were falling from November 2014, the repeated increase of duty was a strategic error of the government. It’s convenient to shore up revenue from excise duty on crude and then announce ambitious social welfare programs to be financed by this collection. Now the government is in a dilemma on how to fix that error. Upstream oil companies cannot bear more given the burden of a 20% cess on crude, while reduction in duty will hit the exchequer. The government will have to find a solution to this crisis,” said RS Sharma, former chairman of ONGC.
Reacting to mounting pressure from consumers and the Opposition, Bharatiya Janata Party president Amit Shah has said the government is readying a solution.
“The government is taking the matter of oil prices seriously. Petroleum minister will have a meeting with the officials of the oil companies. We are trying to work out a formula to reduce the prices in the next three to four days,” Shah said while addressing a press conference in New Delhi.