A government official described the increase in excise duty on fuel, taxes on which make up one-third of retail prices, as a “measure of fiscal prudence”.(Parveen Kumar/HT Photo (Image for representational purpose))
A government official described the increase in excise duty on fuel, taxes on which make up one-third of retail prices, as a “measure of fiscal prudence”.(Parveen Kumar/HT Photo (Image for representational purpose))

Centre hikes duty on fuel; opposition calls it ‘anti-people’

The main opposition party, the Congress, predictably criticized the move, which is expected to result in additional revenue of more than ~40,000 crore to the government, as “anti-people” on the assumption that it would lead to an increase in prices at the pump.
Hindustan Times, New Delhi | By Rajeev Jayaswal
UPDATED ON MAR 15, 2020 02:08 AM IST

The National Democratic Alliance (NDA) government raised excise duty on petrol and diesel by ~3 per litre on Saturday, adding to the windfall gains it stands to reap from a slump in global crude oil prices and giving itself room to stimulate a slowing economy that’s now bracing for fallout of the coronavirus pandemic.

The main opposition party, the Congress, predictably criticized the move, which is expected to result in additional revenue of more than ~40,000 crore to the government, as “anti-people” on the assumption that it would lead to an increase in prices at the pump.

Instead, oil marketing companies cut the price of petrol by 13 paise per litre and that of diesel by 16 paise per litre, albeit a minute fraction of the increase in excise. A litre of petrol cost ~69.87 per litre and diesel ~62.58 per litre at the pump (ex-Delhi) on Saturday following the increase.

A government official described the increase in excise duty on fuel, taxes on which make up one-third of retail prices, as a “measure of fiscal prudence”. Each additional rupee that comes to the exchequer by way of excise duty on petrol and diesel means an additional ~14,500 crore in revenue.

The hike would provide extra resource to fund infrastructure and other development projects at a time when government finances are tight, the official said on condition of anonymity. Effectively, central levies on petrol add up to ~22.98 per litre and on diesel to ~18.83 per litre after the increase.

A slump in global crude oil prices on March 10, after a price war erupted between Saudi Arabia and Russia, resulted in a decline in the price of Indian basket of crude purchases to ~2,552.56 per barrel, a level close to what it was on December 16,2015, when petrol was selling at ~59.98 and diesel at ~46.09 per litre, HT reported on Thursday.

According to the oil ministry’s data-keeper Petroleum Planning and Analysis Cell (PPAC) the price of the Indian crude oil basket, which factors in the rupee-dollar exchange rate, extended the slump to ~2,396.78 on March 12. Experts said there was room to reduce petrol and diesel prices, but the opacity of retail fuel prices in India prevents consumers from reaping the full benefits of an international oil price slump.

This is not the first time that the government has raised excise duty on fuels despite a steep decline in the price of crude, seeking to augment its revenues. To be sure, there have been instances in the past too of the government cutting excise duty to cushion the consumer when global prices surged, a second official said on condition of anonymity.

The government is battling an economic downturn that is expected to lower growth in the 2019-20 fiscal year, which ends in March, to 6%, the lowest in 11 years, according to a forecast in the budget presented on February 1.

“The global economic slowdown due to coronavirus has halted almost every sector and this hike in excise duty would help the government in generating revenue and resources for development of infrastructure” and so on, said Vishal Raheja, deputy general manager of tax research and consulting firm Taxmann.

The Centre found it timely to raise additional money to make up for a shortfall in budgeted direct and indirect tax revenue because of the economic slowdown, the first official said.

“While the benefit of reduction of crude prices in the first quarter of this year has significantly gone to the consumer, the government has taken this step of increasing {excise} duty to raise some revenue in view a tight fiscal situation. This would help in generating the resources for development of infrastructure,” the official said.

“Even with this increase in the duties, the prices of petrol and diesel would fall further on account of a significant fall in the crude price. It may be noted that the prices of petrol and diesel have already fallen by more than ~6 per ltre since the second week of January,” the official said.

The global crude oil price, which was around $66 per barrel in January 2020, fell to about $51 a barrel in the first week of March. It crashed to about $32 this week.

The Congress party plans to raise the issue both inside and outside Parliament to pressure the government to pass on the benefit of low international crude oil prices to the people.

Congress Party national spokesperson Sanjay Jha wrote in a tweet, “Crude oil prices have collapsed, and consumer demand is low. But this callous government is taxing Indians by imposing excise duties on petrol and diesel?? Making merry in this depressing #Coronavirus environment?? This is a crude government. A rude government.”

Vishal Raheja, deputy general manager of tax research and consulting firm Taxmann, said, “It is noteworthy that earlier benefit of rate reduction has been passed on to consumers but this time government has decided to not pass on the benefit and raise revenue in this tight fiscal deficit situation. The global economic slowdown due to corona virus has halted almost each sector and this hike in excise duty would help government in generating revenue and resources for development of infrastructure etc.”

Economists praised the move . “This balance by the government is a good strategy. This also helps the state shore up some revenue for other useful expenditures,” said N.R. Bhanumurthy, economist at the National Institute of Public Finance and Policy in New Delhi.

(Reuters contributed to this story)

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