Why there won’t be any hefty cut in fuel prices

The pricing of petrol and diesel has been an issue of contention for several decades. It comes to the fore only when prices skyrocket, cause concern to the consumer. US Energy Information Administration (EIA), the global production and consumption of crude oil and other liquids stood at 99 million barrels per day in the first quarter of 2018 (Jan-March).  In the second quarter (April-June 2018) it is expected to rise to about 101 million barrels per day.  

Leaving this aside, the current issue pertains to the rising prices of oil in India by manyfold during the past few months.  A series of revisions leading to about Rs 6-7 increase per litre is the grave concern of every commuter.  The recent hike in this regard has put the price of diesel at Rs 77.97 per litre and that of petrol at Rs 85.78 per litre in Mumbai.  These would be at variance in the States due to their own taxes.  

The perplexing issue that a common man is not able to understand is how prices in India are soaring while the crude oil prices were plummeting till recently.  The argument put forth by the oil companies and the Central government is that they are acting in tandem with the scenario prevailing at the global level. 

Hitherto they were operating under the “administered pricing mode” and were set free to fix their own prices since June 2010 for petrol and since October 2014 for diesel.  Utilising this opportunity, prices were revised at fixed intervals on 1st and 16th  of every month.  Dispensing with this practice, the companies started fixing prices on the daily basis since June 2017.  

Therefore, the pricing issue has fallen completely under the domain of the oil refining companies.  Nevertheless, it has been reported that there are dictates by the Government of India at times (particularly during the time of Elections to States) to desist from hiking the prices as a temporary measure. There were also assurances to compensate the loss borne by the companies due to these directions.  But the companies are lamenting that they never received any such compensation.

What the common man was not able to understand is that why the prices were not revised downwards when the crude oil prices plummeted at the global level even up to $40 per barrel.  One supposition could be that the companies are attempting to make good old losses, taking advantage of ‘free pricing.’ Even the Press is not very critical of the actions of the oil companies and are only highlighting the ‘scathing attacks of the opposition’ on the government.  

Therefore, there is a strong case for going into the ‘cost of operations’ and ‘bottom lines’ of these companies.  It is true that there is no Indian company that is worth mentioning operating in the areas of exploration and production (except ONGC in the government sector and Reliance now in the private sector), except those involved in the process of refining.  An independent review of the operations of these refining Companies shall be taken up on a priority basis, so as to decide on the cost-push factors’ of hike of the oil prices in India.

There shall also be a stop to the blame game by both the Central and the State governments in terms of the diverse taxes imposed by them.  On the part of the Centre, it imposes excise duty and the States levy VAT.  Effective from the 25th of May 2018, the excise duty is pegged at Rs 19.48 per litre of petrol and Rs 15.33 per litre of diesel at Delhi, whereas the Delhi government is imposing VAT at the rate of 27 per cent of the cost at Rs 16.55 for petrol and Rs 10.11 for diesel (17.27%).  As per the present reckoning, a consumer in Karnataka pays 64 per cent tax on petrol and 32 per cent on diesel (Central and State taxes combined). The taxes imposed in States are above 25 per cent in 20 States with the highest tax in Maharashtra at 39.78 per cent on petrol.  

Another alternative under consideration is the inclusion of petrol and diesel in the framework of GST. There has been a firm belief that if these two goods are included in the network of GST, it is estimated that prices would come down by Rs 27 for petrol and Rs 15 for diesel at the highest GST slab of 28 per cent.  States say this move would severely affect their revenues. As per the data of the Petroleum Planning and Analysis Cell (PPAC), the total tax collection on account of the sale of the oil amounted to Rs 4.63 lakh crore during 2016-17.  This was shared by the Centre and States in the ratio of 59:41. In effect, unless the governments at the Centre and in the States come forward, there would be no solution to the present impasse.  It is better that an early solution is found for the impending problem of ‘rising oil prices,’ lest the entire economy should suffer from the cascading effects.