Rising Fuel Prices break the back of the Common Man

  • Prof. Gourav Vallabh

In 2014, the Excise Duty per litre on petrol was Rs. 9.20 which is currently Rs. 32.90, which means a 258% increase in the last 7 years as far as the Excise Duty on petrol is concerned. In 2014, the Excise Duty on diesel was Rs. 3.46 per litre, which is currently Rs. 31.80 per litre. In other words, the increase in Excise Duty on diesel is a whopping 820%.

So, my question is: has any state government, forget about Congress, BJP or regional parties increased the VAT to the extent of 258% and 820%? - The answer is a big NO! Has any state increased it by even 20%? - The answer is a big NO. So, when state governments have not increased their state VAT, the major increase is because of the Excise Duty increased by the Government of India. Then the argument of state governments decreasing their VAT to provide relief to the people is a flawed one.

Second, in the last 7 years, the Government of India in the form of Excise Duty on petrol and diesel, has collected a total of more than Rs. 24 lakh crores. On the other hand, the total collection by all the state governments combined in last 7 years is something around Rs. 14 lakh crores. In other words, the cumulative collections by states is just 58% of the excise collected by the center. I am not differentiating between Gujarat and Chhattisgarh or Gujarat and Rajasthan; I am talking about states as a whole. So, when the major increase is by the Government of India, the reduction should also come from the government’s kitty of excise.About the argument which has been given by the Petroleum Minister and various other functionaries of BJP, that we follow dynamic pricing, I have only two points:

Number-1, what happens to dynamic pricing during elections? On February 26, 2021, the dates for election for 5 states were announced. Between that date and May 2, 2021 when the results were announced. During this period, the crude oil prices had increased, in Indian rupee terms, Rs. 720 per barrel, but instead of increasing petrol and diesel prices, during the election, the petrol and diesel prices were reduced.

The second argument is, that currently, the crude oil price is around 72 dollar per barrel, which was 30 dollar per barrel in the last year. Why was the benefit of lower crude prices not passed on to the people? It means, that petrol and diesel pricing is not dynamic pricing, it is purely political pricing. The renewed wisdom of asking the states to lower the VAT and reduce prices, did you acquire this ‘Divya Gyan’ recently and you were not aware of this before 2014? Before 2014, when the petrol and diesel prices were hiked, the BJP leaders would resort to all sorts of trickery and drama.So, the answer is very simple that the Government of India collects something, or I can say the Government of India collects around double of what state governments collect in the form of Excise Duty on petrol and diesel.

Number- 2 point, the Excise Duty on petrol and diesel by the Government of India in last 7 years has been increased by 258% for petrol and 820% for diesel. Then, when the major increase is because of Excise Duty, then the major relief should also come from the Central Government’s side, and last but not the least that state VATs are linked to the Government of India’s Excise Duty. So, if Government of India reduces Excise Duty by Rs. 1 and if state VAT rate is 25%, then the final relief to the consumer is Rs. 1.25. So, if the Government reduces Rs. 10 of Excise Duty today, the ultimate consumer is going to get a relief of around Rs. 12.50 because the state VAT is linked to the Government of India’s Excise Duty.

The last 15 months have been very difficult for every person in the country and for every person in the world. In these 15 months, 3 crore 20 lakh people who were in middle-income group were pushed into the lower-income group. In these last 15 months, 7.5 crore people of our country have gone below the poverty line. In this last one year, i.e. in 2020, according to the CMIE, 97 percent of Indians have become poorer. Our income has either decreased or our inflation adjusted income has reduced.

The government says that our recovery is ‘V’ shape but what we are witnessing is that it is ‘K’ shaped, because 97 percent people have become poorer. The income of only 3 percent of the people in the country is increasing.

Retail inflation has reached 6.3 percent and its effect is weighing the common man down. Keep in mind that the Reserve Bank of India has set its outer limit of inflation to be 6 percent. The retail inflation has gone above that, and there are certain reasons for it. There are two things to be followed to solve a problem. First of all, one has to acknowledge that the problem exists. Secondly, one has to solve that problem with an open mind, with advice from experts. The government doesn’t seem to be accepting the problem. When we talk of food inflation, the Finance Minister comes out with as bizarre a statement as, “I don’t eat onions.”

The inflation in edible oils is 30.84 percent in May 2021. When the people question the soaring mustard oil prices, a central minister blames the lower adulteration levels for increased prices. When the former minister of Chhattisgarh government is asked, he says that the fuel prices will undoubtedly be increased and people who do not want to buy it, may travel on foot. If prices of even the most basic amenities are increased, then you have an option to not buy them. If such statements are being made, then it means that they are not willing to accept the problem in order to address it.

LPG, Petrol and HSD (High Speed Diesel) Inflation in the month of May is at 60.95 percent, 62.28 percent and 66.3 percent respectively and the total inflation on fuel and power is 37.61 percent.

Every morning when you open the newspaper, you find prices increased by either 25 paise or 40 paisa. The prices of petrol and diesel have been increased 28 times since May 4. And it has increased by approx. Rs. 7 in diesel and Rs. 6.75 in petrol. This petrol pricing is not a dynamic pricing, it is only political pricing. Reduce it immediately to increase disposable income in their hands for new demand creation through increased spending. The new demand will lead to businesses utilizing their spare capacity and create fresh investments leading to job creation. What is the economic model of today? - High Unemployment, High Inflation, Low GDP and Low Income. This is their economic model. The BJP government needs to move away from this model. India’s economy is fundamentally strong, it has the potential of producing great results if problems are addressed structurally.

The author is a Professor of Finance and National Spokesperson, Congress Party