Petrol Price and Politics: Is It Profiteering or Providence? Asked Political Analyst Sujata Pandey

For the ruling political parties at the Centre and States, it is essentially revenue pressure that makes them indifferent towards the opposition hue and cries against the fuel price hike. During the UPA government, when petrol prices went up considerably, people saw a frontal attack by then Gujarat Chief Minister and now Prime Minister Narendra Modi, Smriti Irani, and other top BJP leaders on then Prime Minister Dr. Man Mohan Singh (2009-14). Currently, India is witnessing a role reversal and the main opposition Congress, under the leadership of Sonia Gandhi and Rahul Gandhi has launched a frontal attack on the Modi-led NDA government as petrol price touches Rs 100 per liter mark in several states. Currently, rising crude price has pushed petrol price to above Rs 90 a liter in the National Capital and to just below Rs 100 in Mumbai. Similarly, the Diesel price has also gone up considerably.

In Rajasthan and Madhya Pradesh, the Petrol price has gone past Rs 100. These states levy the highest value-added tax (VAT) on fuel. Though the Rajasthan government reduced the levy marginally, however, it did not come as much relief. It is true that states and the Centre have their revenue pressures and require huge financial resources to meet the challenges posed by the pandemic.

Is it a Dharm Sankat (divine predicament) for the government? Union Finance Minister Nirmala Sitharaman would like us to believe that. Her suggestion that Centre and States have to work together with sound good and that would certainly help in bringing the retail prices at a rational level. But the opposition is in no mood and political leaders of several opposition parties attacked the BJP for ‘Profiteering’ with high excise duties. Nearly 60 % of the retail price of petrol comes from the Centre’s and state taxes.

Dharmendra Pradhan, Union Oil Minister defended the high taxes levied on fuel on the pretext of development works during the pandemic. He tried to explain the reasons for the hike. According to him, the reduction of oil production in international oil-producing companies to gain more profit is the main reason for the price hike. This is making the consumer countries suffer, but Pradhan passed the buck by saying Union Finance Minister and state governments would find a way.

Currently, the central government levies a fixed rate of excise duty while states levy different rates of VAT. It is argued that under GST, the two would merge and bring uniformity, solving the problem of fuel rates being higher in states with higher VAT.
“The issue is not very obfuscating if we rise above politics and consider it a serious concern for inflation. Bringing petrol and diesel under the Goods and Services Tax (GST) regime can be one option to end the cascading impact of taxes and bring uniformity. However, given the main source of revenue, states would find it difficult to comply. Petrol politics need to accord priority to provide relief to the people who are still facing cascading effects of COVID-19,” said Sujata Pandey, Political Analyst.

“We need to create a benchmark for petrol prices, irrespective of the volatility of the international oil market. How much is too much- is the main question. Instead of blaming the ruling political parties, it is time for our political leadership to attempt to arrive at a practical model for resolving the firing issue,” she added.

Historic and unsustainable fuel prices would derail the Indian economy. Farmers are still in protest mode and the cost-push factor of hike oil prices would further increase their misery. During the period 2001 to 2017, imported oil products consumption in the country went up from 75 % to 95%. International crude price (Indian basket) fell from USD 110 in January 2013 (UPA) to USD 64 in March 2018(NDA). Meanwhile, in January 2016 it touched a low of USD 28. .

Brent oil crossed USD 66 a barrel recently. Prices fell from over USD 70 a barrel in January 2020 to around USD 14 a barrel in end-March 2020 due to the pandemic. From USD 14 it went up to USD 20 in May last year and post that it is moving northward. The rise is also due to the reduction of production by the Oil Producing and Exporting Countries (OPEC) and Russia.

It is interesting to note that the petrol price has been increased at this level despite moderate prices of international crude oil. Compared to the UPA Government’s period the price of crude has fallen to nearly half. This context provides ammunition to the opposition to attack and dub the hike as a brazen act of profiteering. It is also a fact that domestic crude oil production has fallen to an 18-year low in 2020.

In the past, when global crude oil prices have increased, duties had been cut. But petrol politics is at a new high. So, blame it on profiteering or providence as since 2014, as global crude oil prices declined, excise duties have been increased and the great Indian Middle Class find it difficult to digest.

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