The steady increase in the prices of petroleum products, especially petrol and diesel, after the dismantling of the administered price mechanism has hurt citizens. The prices of petrol and diesel have hit new highs recently, especially last week. Diesel price is at its highest ever at Rs 65.98 per litre in Bengaluru and petrol price has touched a four-year high of Rs 75.15 per litre. The purported reason for the hike is the recent spurt in the international price of crude. But that’s not true. The average price of imported crude is $64 per barrel now, the same as it was in July 2009. The prices of diesel and petrol were then less than Rs 33 and Rs 45 respectively. Even after accounting for exchange rate differences and other costs, consumers are now paying about Rs 30 more per litre than they should.
It is the steady increase in central excise duties and state levies that account for the high prices of petrol and diesel, not international market prices. Fuel prices were kept high artificially even when crude prices had fallen to as low as $29 a barrel in early 2016. The Narendra Modi government increased excise duty 11 times in over an year from November 2014, but cut it only once marginally in October 2017. Duties and taxes now constitute 48.2% of petrol price and 38.9% of diesel price. Indeed, petrol and diesel prices are the highest in India in the neighbourhood. Since the volume of import of crude and consumption have risen, the government has gained an increasing amount in duties and taxes while consumers have been hit.
This goes against the original promise made when the price regulation mechanism was dismantled. The claim that the consumer would benefit from market-linked pricing has proved false because the government has not kept up its side of the bargain. The Centre and state governments have collected vast amounts of money that should have gone to consumers. The argument that this has been used for purposes like infrastructure development is not acceptable. That was not the original plan. The plan to create a price stabilisation fund which would cushion the impact of price increases also did not work. The government has now asked oil marketing companies to absorb part of the price as international crude prices rise. But this is too little, too late. The government should immediately cut the taxes on petrol and diesel and make them more affordable to consumers. The greater spending power that that will give consumers will boost the economy. There is no inflation threat to fear, either, as the RBI has indicated by lowering its inflation forecast just last week.