City Sunday

Fuel at 4-year high: Common man hit

Retail prices of auto fuels are on fire as oil marketing companies (OMCs) pass on the increase in global oil prices to consumers. The soar in fuel prices continue as petrol rates in Delhi reached a four-year high of Rs 73.83 on April 2, 2018. In Mumbai, the brunt of price hike was even worse as the motorists would now be forced to pay Rs 81.69 per litre of petrol. Diesel, on the other hand, touched a record-high of Rs 64.69 in the national capital. The petrol price in Delhi is the highest ever since September 4, 2013, when the global crude oil prices had skyrocketed to USD 120 per barrel.

“With imports accounting for 80 percent of our crude supplies, the spiralling prices of crude in the international market have put a severe strain on country’s import bill.” The Narendra Modi government has reaped large revenues from oil taxes even though the global crude market started its descent in June 2014. If the trend continues, it could throw a wrench in policymakers’ calculations on current account deficit (CAD) and fiscal deficit. The trade deficit, a key component of CAD, has risen in recent months due to rise in oil prices.

The Congress-led government in June 2010 deregulated petrol prices in a reform aimed at reducing the massive subsidies it pays to state-run fuel refiners which rely on imported energy.

In November last year, OPEC and other producers, including Russia agreed to cut output by about 1.8 million barrels per day (bpd) to slash global inventories to the five-year average. The arrangement is set to expire at the end of 2018.

During the 1990s motor vehicle ownership escalated at roughly 10 per cent each year. One in ten families in Bangalore now owns a car, and almost every family owns a two-wheeler. Just two decades ago, one of every 16 families owned a car and one in four, a two-wheeler. Cheaper loans, rising income, and changing consumer preferences have toppled the global balance the growth rate for vehicles in the West has levelled off at 5 per cent each year; in Asia, it is 15-30 per cent per year.

According to data of the Union ministry of petroleum and natural gas, India’s transport sector is the single biggest user of oil and oil products–roughly 30 per cent of the total consumption. Compare this with the 20 per cent of the total oil usage that goes into cooking energy–including liquid petroleum gas (LPG) and kerosene, which serve millions of poor households across the country. Power generation and industry together account for 30 per cent, which equals the transport sector’s oil consumption. The remaining 20 per cent is made up of miscellaneous uses. At the same time, it is clear that there has been a massive shift in freight traffic from the railways to roadways. Currently, the railways’ share in freight traffic is a mere 26 per cent; roadways hog 74 per cent.

Among the developing countries, only China has set fuel economy standards. It is also driven by concerns over its energy security. Experience the world over shows fuel economy regulations need proper crafting. Lax standards or exemptions for bigger vehicles, for instance, encourage gas guzzlers.

In India, cheap prices have set off a mad rush for diesel cars. The lack of policy to make diesel cars pay for environmental costs has spurred the boom. This increase in the use of diesel vehicles threatens to jeopardise public health seriously. Air quality in Indian cities is at risk and diesel technology, even with the current ‘best’ Indian technology is highly polluting.

Fuel under GST ambit

The inclusion of petrol and diesel under GST is the only way to rationalise fuel prices. Currently, there are five petroleum products that are out of the GST slabs viz. petrol, diesel, crude oil, natural gas, aviation turbine fuel or ATF.  These products are subject to three kinds of taxes namely excise duty, VAT and dealer’s commissions varying from state to state. As per data released by Indian Oil Corporation, the price paid by dealers in Delhi is roughly Rs 30.70 per litre. With an addition of excise duty of Rs 21.48, a VAT of Rs 14.96 and dealer’s commission of Rs  3.24 the price paid by consumer amounts to near Rs 70.38 per litre.

Experts believe that if petrol and diesel are brought under GST, they will not be placed under a slab less than 12% tax. Assuming that petrol and diesel are put under the highest tax slab of 28%, it is estimated that GST will still be 22% cheaper than the current tax rate. Further, even if the SUV compensation cess is applied, a difference in favour of GST still exists. The two primary reasons behind the Oil Ministry supporting this inclusion are – (i) to bring a uniform tax mechanism and (ii) to allow the Centre to benefit from the sale of petrol and diesel more than the states. Application of GST subsumes application of excise, VAT and dealers’ commissions.

Motorists have marked their dissent against the NDA led-Modi government for the spiralling fuel prices, calling it “even worse than the UPA-era”. Demands have been raised against the Centre led by Modi to bring down the excise rates, in order to negate the impact of rising crude oil prices, which is currently hovering at around USD 70 per barrel.


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