Taking on the Opposition’s criticism over rising fuel prices, Finance Minister Arun Jaitley on Wednesday dared the State governments led by the Congress and the CPI(M) to reduce VAT on petroleum products and forgo their share of the Centre’s revenue from fuel taxes.
“All those who are raising their voices about inflation today — when they were in power, inflation was at 10-11%,” Mr Jaitley said. “Today, they are raising their voices over 3.36%. The statutorily fixed monetary policy target for inflation is 4%. And in the monsoon months, due to vegetable prices, there is a spike period. And in this spike period, it is 3.36%, so it is in keeping with traditional Indian standards.”
Briefing the media on the Cabinet’s decisions on Wednesday, he said: “There are several reports in the media and many States are also talking about petrol prices ... But how much are those States [where those parties are in power] taking in taxes on petrol?”
“Two years ago, when oil companies used to review the [petrol] prices every fortnight, and often reduced them, on the same night as the reduction, States governments like Delhi, Haryana, Punjab, Himachal Pradesh used to increase their VAT by that same amount,” he added.
“And of the Central tax receipts from petrol, 42% of that goes to the states,” Mr Jaitley said. “So, where the Congress and CPI(M) are in power, they should say they don’t want taxes from petrol, either from the Central share or from the State VAT.”
The Finance Minister added that the recent hurricanes in the U.S. have greatly affected refining capacity, which has led to a temporary spike in global oil prices due to the demand-supply mismatch.
“That temporary spike will be limited, as the Petroleum Minister had pointed out,” he said. “To run any country, the government needs revenue. How will highways be built?”
Commenting that the bulk of investment in the country currently is being driven by public investments and foreign direct investment (FDI), the Finance Minister said the public investment was coming from these revenue sources, including central excise duties on petroleum products, and that whatever growth is being experienced was due to that revenue.
“To cut such investment means cutting spending on social sector and infrastructure projects,” he said.
Stimulus ahead?
Mr Jaitley also said that he had over the past two days held meetings with other Ministers, secretaries, and experts within the government on the state of the economy.
“We have taken note of all the economic indicators that are available,” Mr. Jaitley said. “This has been a pro-active government. In terms of our own reform agenda and reacting to situations as and when they demand, we have been active. So we have taken note of all the indications that are coming. And over the last two days, I have had a series of discussions with my ministerial colleagues and officials and other experts within the government.”