The twaddle of fuel price reduction

By Dr Santosh Kumar Mohapatra*

Make people’s life difficult, miserable and horrible by espousing anti-people policies or raising the prices of essential commodities including fuel. Then ease the burden of people to a lesser extent and publicise it as a gesture of magnanimity and pro-people to derive political mileage. The present ruling dispensation at the centre has embraced this hypocritical policy which is manifested in the reduction of fuel tax by a lower margin after hiking a massive margin in past 8 years especially during first wave of Covid-19 pandemic.

The fact is that on May 21, the Central Excise duty on petrol has been cut by ₹ 8 per litre and the same on diesel has been cut by ₹ 6 per litre. Also, the government will give ₹ 200 per cylinder subsidy to Ujjwala Yojana beneficiaries for 12 cylinders in a year to help ease some of the burden arising from cooking gas rates rising to record levels. Soon after the cuts were announced, Prime Minister Narendra Modi underlined that it is “always people first for us” and that it will further the “ease of living”.

Defending the government amid a steep price rise, Finance Minister Nirmala Sitharaman said steps have been taken to cushion the poor. The minister also said, “our government since when @PMOIndia@narendramodi took office, is devoted to the welfare of the poor. Prime Minister Narendra Modi has specifically asked all arms of the government to work with sensitivity and give relief to the common man. Keeping in line with Prime Minister Modi’s commitment to helping the poor and common man, we are announcing more steps to help our people”.

Definitely, reduction of tax is a welcome step, though not adequate. But question is if fuel tax cut is pro-poor and an act of sensitivity as stated by Prime Minister and Finance Minister, then who took the anti-poor, insensitive decision of raising taxes on petroleum products? Who did not reduce taxes for a long time when people were devasted by the oil price hikes exacerbated by Covid -19 induced recession?

When progressive people were condemning the imposition of high excise taxes/cess/surcharges, how did BJP leaders were defending the imposition of high taxes on petroleum products on the plea of financing covid vaccine, Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY), redeeming oil bonds? How can a government be called pro-poor, sensitive that takes more from common people by way of indirect taxes but give less to people and celebrate the same as an act of kindness?

Welfare measures for poor is necessary but should be financed through higher taxes on rich/wealthy. But in a bid to cushion falling revenue, Modi’s fuel-tax hikes had encumbered India’s post-covid recovery. The high oil prices have added another headwind to an economy that experienced the biggest contraction in four decades.

Finance Minister tweeted: The cut in taxes will help our mothers and sisters. But already, they are battered and pounded due to hyperinflation and the hike in essential commodities including domestic gas cylinder. But the retail selling price of the non-subsidised domestic gas cylinder was ₹410.5 per 14.2-kg cylinder on March 1, 2014. As of May 13, the same costs ₹1,003. Since April 2021, prices have risen by Rs 193.5 per cylinder.

However, the government pays no subsidy on LPG in most cities and the price of the refill that consumers, including the poor women who got free connection under the much-talked Ujjwala scheme, is the same as that for non-subsidised or market price LPG. Similarly, the sale price of commercial LPG -a 19-kg gas cylinder- has been hiked steadily from ₹ 1,473.50 (Rs 77.55 per kg) in June 2021 to ₹2,253 in Delhi as of 1st April 2022. The rise of prices of commercial cylinders also increases the cost of food in hotels and hostels affecting students and all sections of people.

The government says it will lose ₹ 1 lakh crore by taking the cut on Central Excise duties and further ₹ 6,100 by way of gas cylinder subsidy. But the Centre’s tax collection from the oil sector swelled 36 per cent in 2020-21 to more than ₹ 4.55 lakh crore from ₹ 3.3 lakh crore. The Centre’s massive excise duty hikes on auto fuels netted it around ₹ 1.8 lakh crore in additional revenue during the fiscal year 2020-21. According to the then Petroleum and Natural Gas Minister Dharmendra Pradhan’s (written reply in Lok Sabha) tax collected on the retail price of petrol and diesel in India has increased by 459 per cent in seven years.

In the last eight years of the Modi government, the central government collected Rs ₹ 26,51,919 crore as fuel taxes. According to the former Union Finance Minister P Chidambaram, there are approximately 26 crore families in India. That means from every family the central government has collected, on average, ₹ 1,00,000 as fuel tax!”.  It shows how, oil taxes have eroded the purchasing power of people, especially the middle classes. Further, the rise of oil taxes has spurred inflation to such a record high that people were struggling to purchase essential commodities.

In 2014-15, the Centre had collected revenues worth ₹ 99,068 crore by way of excise duty on petroleum products, while all states together had collected ₹ 137,157 crore by way of Sales tax/VATs. Both had collected together ₹ 236,225 crore. But according to Minister of State for Petroleum and Natural Gas Rameswar Teli, the Centre has collected a total of ₹ 4,55,069 crore as taxes and cess on petrol and diesel in the last financial year (2020-21), and the state governments collected a total of ₹ 2,02,937 crore as sales tax and value-added tax (VAT) in the same period. That means, in the same period, the Centre has seen a growth of 359 per cent while the states have only 52 per cent only.

The finance minister urged states to implement a similar cut and pass on the benefit to the common man.  In past, Prime Minister had appealed to all state governments, especially the states where the reduction wasn’t done during the last round (November 2021), to reduce the Value Added Tax (VAT) on fuel “in the spirit of cooperative federalism”.

But when the Centre has many avenues to raise taxes, states have no such avenue. States’ power to raise revenue is squeezed after GST implementation. As per the XV Finance Commission, states bear more than 62 per cent of expenditure responsibilities but are given only 37 per cent of revenue-raising power, while the Union government owns 63 per cent of revenue-raising power to spend on 38 per cent of its expenditure responsibilities.

Further, it is the Centre which is collecting more taxes from petroleum products. Hence, while the Centre feels the states are not reducing VAT in line with the Centre’s cut in excise duty, the states have expressed concerns over their fiscal cushion, especially with the GST compensation regime due to end in June. However, despite constraints, the Kerala government has reduced VAT on petroleum products.

When the Prime Minister is talking about cooperative federalism, States don’t get anything from revenues collected by way of cess, and surcharges collected by the Centre. Hence, the Centre is collecting more revenues through cesses and surcharges. As a result of which states are getting only 29 per cent from the divisible pool instead of 41 per cent as fixed by the 15th Finance Commission.  At present, the majority of the excise duty levied on petrol (96 per cent) and diesel (94 per cent) is in the form of cess and surcharge in which states have no share.

How Finance Minister told unabashedly the average inflation during our tenure has remained lower than during previous governments. Had people elected to emulate the worse of the previous regime or better things of the previous regime? There were astounding achievements to the credit of the previous regime. But this government is extracting taxes from the poor, not by oil taxes but by indirect taxes which is regressive. This government has decimated the masses by privatising the public sector and essential services. What is reprehensible is the creation of hatred against critics.

Wholesale price-based inflation spiked to a record high of 15.08 per cent in April on rising prices across segments from food to commodities. The WPI-based inflation was 14.55 per cent in March and 10.74 per cent in April last year. The wholesale price index (WPI) had dipped to – 0.39 per cent in January 2015. Inflation was at 0.1 per cent in December 2015.

The Consumer Price Index (CPI) inflation or retail inflation has soared to an 8-yr high of 7.79 per cent in April 2022 as against 6.95 per cent in March 2022 and 4.21 per cent in April 2021. Inflation in the food basket alone rose to 8.38 per cent in April from 7.68 per cent in the preceding month and 1.96 per cent in the year-ago month. The Reserve Bank of India has been mandated by the government to ensure that inflation remains at 4 per cent with a margin of 2 per cent on either side.

Rising prices including those of petrol and diesel were among the reasons that brought down the UPA government of Manmohan Singh, whom the then Gujarat Chief Minister Narendra Modi had described as a “Sardar (chief), who is not asardar (effective)”. In May 2012, when petrol prices were hiked by steepest Rs 7.54 a litre due to international crude oil prices, Narendra Modi had called it a failure of UPA government. But Narendra Modi after becoming Prime Minister increased fuel taxes more.

The bitter truth is that, in 2014, the excise duty on diesel was Rs ₹ 3.56 and that on petrol was ₹ 9.40. The Centre raised excise duty at different times. From May 2014 to September 2018, excise duty on petrol has gone up by 211.7 per cent, and on diesel by 443.06 per cent. Central excise duty was revised upwards 12 times.

As of 16th February 2020, for every litre of petrol, the basic excise duty is Rs 2.98, special additional excise duty ₹ 8, and additional excise duty (road and infrastructure cess) ₹ 9.  The total amount of tax was ₹19.98/ litre. Similarly, for every litre of diesel, the basic excise duty is ₹ 4.83, special additional excise duty ₹2, and additional excise duty (road and infrastructure cess) ₹ 9.  The total amount of tax was ₹ 15.98/ litre.  Phase-wise changes have been made.

In the 2021-22 Union Budget, the government added an agriculture infrastructure development cess on petrol and diesel at Rs ₹2.5 and ₹4 respectively and simultaneously reduced the excise duty by the same amount so it would not affect the consumer. But the real reason was the centralisation of power and states will have no share of revenues generated by way of cess and surcharges. It was expected that the Centre would get around ₹49,000 crores from the agriculture infrastructure development cess in 2021-22.

How there was a huge increase by ₹ 13 on petrol and ₹ 16 on diesel between March 2020 and May 2020 when crude oil prices had plunged below $20 a barrel. At that time, after increase, the government was levying ₹32.90 per litre excise duty on petrol and ₹31.80 a litre on diesel before reducing excise duty on petrol by ₹5 per litre and that on diesel by ₹ 10 a litre, in November 2021. As a result of which, the petrol price has been reduced to ₹ 27.90 per litre and the diesel price to ₹  21.80 per litre after the cut.

Now in view of unbearable inflation, and fear of losing popularity, the Centre was forced to cut prices again. After the latest excise cut, the incidence of central tax on petrol will come down to ₹ 19.9 a litre and that on diesel to ₹ 15.8 per litre. That means, when compared to 2014 (when the basic price was roughly the same), the Union Government still levies an additional tax of ₹ 10.50 per litre for petrol and ₹ 12.24 per litre for diesel (compared to the taxes in effect when it took office in 2014. Hence, Centre should reduce the taxes which it had increased since 2014. Smilarly, states should reduce the percentage of VAT they had increased since 2014. Taxarion should come down to level that was seen in UPA era.

However, present reduction shows how to struggle, and protest pay. With this reduction, crores of people will be benefited, though not adequate. But when the people who were demanding a cut in taxes were hated by BJP leaders and many intellectuals were dubbed as anti-Modi, negative people. Hope, those who were arguing in support of the oil price hike will refund the gain to the government due to the tax cut.

What is reprehensible is that many intellectuals, great personalities, litterateurs, and awardees are never raising their voices against such atrocious moves as raising taxes affect the masses. Many of them were supporting and now also supporting such  anti-people policies of government for the hope of getting elevation in their career or getting awards, and recognitions. People should realise and recognise the importance of critics in the present exploitative society. No problem can be solved if intellectuals want to remain uncontroversial.



The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of Sambad English

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