Petrol price up ₹36 a litre, diesel 26.58 in less than 18 months

Petrol and diesel prices were hiked for the fourth consecutive day on Saturday by 35 paise per litre, pushing the total increase in rates on petrol to ₹36 per litre and on diesel to ₹26.58 since early May 2020 when taxes on the two fuels were raised to record levels.

Petrol in Delhi now costs ₹107.24 a litre and diesel comes for ₹95.97, according to a price notification of State-owned fuel retailers.

The latest increase that follows the unrelenting hike in international oil prices has pushed pump rates across the country to their highest-ever levels. While petrol is above ₹100-a-litre-mark in all major cities, diesel has crossed that level in more than a dozen States.

High excise duty

The government had raised excise duty on petrol and diesel to mop up gains that would have otherwise accrued to consumers from international oil prices crashing to as low as $19 per barrel. While international prices have since recovered to $85, excise duty has remained at ₹32.9 per litre on petrol and ₹31.8 on diesel.

Oil Minister Hardeep Singh Puri on Friday equated demand for cutting excise duty to ‘axing one’s own feet’, saying such levies funded government schemes to provide free Covid-19 vaccines, meals and cooking gas to millions amid the pandemic.

Also see: Biting the bullet on petrol prices

“I think this simplistic political narrative we get in India (that), ‘prices have gone up, why don’t you reduce your taxes’... so every time price goes up due to something else, it says you axe your own feet in the process,” he had said late on Friday.

He was asked a question on whether the government would cut taxes, which make up for 54 per cent of the price of petrol and over 48 per cent of diesel, to ease the burden on consumers.

“I am not the finance minister therefore it is not an appropriate answer for me to give,” he said on demands for cutting taxes. “That ₹32 a litre that we collect provides us the ability to provide welfare services, including 1 billion vaccines.”

Demands for tax reduction

The increase in fuel prices has stoked concerns over inflation as diesel is the mainstay fuel used for transporting goods, including agri commodities.

Opposition parties including Congress have been critical of the government over the price hikes and have demanded a reduction in taxes.

Government control on tax rates

Puri had said that while the centre levies specific excise duty on petrol and diesel, which does not change if the oil prices fall to $19 per barrel or rise to $84, State governments levy ad valorem rate of VAT whose incidence goes up with every hike.

He said petrol price was decontrolled in 2010, effectively making it linked to world markets.

Diesel prices were freed from government controls in October 2014 by the Modi government.

Also see: Private companies should participate in crude oil procurement: Oil Minister

Kerala High Court, he said, had suggested that the inclusion of petrol and diesel in the Goods and Services Tax (GST) regime be put before the GST Council.

And when the Council considered it at its meeting in Lucknow last month, “the State governments thought otherwise,” he said, referring to the panel’s decision to not include petrol and diesel in the GST regime which would have meant subsuming central excise and state VAT into one uniform tax.

Finance Minister Nirmala Sitharaman had after the GST Council meeting stated the panel had unanimously decided to continue to keep petrol and diesel out of the GST regime.

UPA-issued oil bonds

Puri had also referred to the ₹1.34 lakh crore oil bonds the previous Congress-led UPA government had issued.

Though he did not link them to the current fuel prices, the bonds are among the factors that BJP leaders have been blaming for the rise in fuel prices.

Petrol and diesel as well as cooking gas and kerosene were sold at subsidised rates during the previous Congress-led UPA government.

Instead of paying for the subsidy to bring parity between the artificially suppressed retail selling prices and the cost that had soared because of international rates crossing $100 per barrel, the then government issued oil bonds totalling ₹1.34 lakh crore to State-owned fuel retailers.

These oil bonds and the interest thereon are being paid now.

More collected than to be repaid

Of the ₹1.34 lakh crore of oil bonds, only ₹3,500 crore of principal has been paid and the remaining ₹1.3 lakh crore is due for repayment between this fiscal and 2025-26, according to the Finance Ministry.

The government has to repay ₹10,000 crore this fiscal year (2021–22). Another ₹31,150 crore is due to be repaid in 2023-24, ₹52,860.17 crore in the following year and ₹36,913 crore in 2025–26.

However, the collections from the hike in excise duty far exceed the amount due to be paid to oil companies.

Also see: FinMin announces repayment of oil bonds worth ₹5,000 cr

Minister of State for Petroleum and Natural Gas Rameswar Teli in July told Parliament that the Union government’s tax collections on petrol and diesel jumped by 88 per cent to ₹3.35 lakh crore in the year to March 31 from ₹1.78 lakh crore a year back.

Excise collection in pre-pandemic 2018–19 stood at ₹2.13 lakh crore.