At a time when global fuel prices are at record lows, India now has one of the highest rates of taxation on auto fuels in the world. After a recent round of tax increases, the total burden of Central and state imposts on transport fuels now stands at a record 69%. This means the Indian consumer is losing out on the bonanza that could have come from cheap fuel. Lower fuel and transportation costs could have acted as a shot in the arm of the economy that is trying to overcome the impact of the coronavirus lockdown.

The Indian economy is expected to have a flat rate of growth or contract this year by most research agencies and economists. Most economists feel even after the lockdown is lifted, the economy will take a long time to rebound. Cheaper auto fuel could have meant cheaper goods, something that could have helped boost demand for companies struggling to sell and for families struggling to find the cash to buy in an era where incomes and livelihoods stand challenged. Besides, a lower cost is seen as an imperative to attract foreign capital fleeing China to Indian shores and for Indian firms to be competitive in the global marketplace. While Indians are paying almost a dollar for a litre of petrol, the rates in other competing countries are far lower, with Vietnam for instance selling petrol at 50 cents and Indonesia at 60 cents.

The governments at both the Centre and the states of course argue that they had no other choice but to slap higher taxes on auto fuels and liquor, two products still seen as luxuries. For instance, the extra taxes on fuel can help them mop up Rs 1.6 -1.7 lakh crore. The Centre was hoping to earn Rs 24.23 lakh crore as tax revenues. This target is likely to be missed by a wide mark. With the economy possibly contracting, collections of both income tax as well the GST are likely to be quite poor. Most officials privately admit that the GST collections for April are likely to be less than half of that in March. Under such circumstances, the government will have to decide if it wants a more efficient industry with a lower cost of production or higher revenues that could help it balance the fiscal deficit.