With retail fuel prices at an all-time high, there has been a clamour from industry bodies for the Centre to step up and offer some relief to consumers.

Specifically, industry representatives have called for the Centre to cut the tax component on auto fuels, which has been grown steadily.

In an official statement, FICCI President Rashesh Shah said, “Unless swift action is taken, the economic growth will again head towards a speed-breaker. Among the most immediate actions that can be taken by the government is to bring down the excise duty on fuel.”

Another industry body, Assocham, too, emphasised the need to lower the tax on fuel, and said that a sustainable solution lies in the automobile fuel coming under the Goods and Services Tax.

A report prepared by economists at the State Bank of India said that a $10-a-barrel increase in crude oil price increases India’s import bill by around $8 billion. This would slow down the country’s Gross Domestic Product by 16 basis points and push up the fiscal deficit by eight basis points, the report added.

Politics of oil pricing

The Centre has, however, thus far remained non-committal on what, if any, relief it plans to offer consumers. It has argued that high retail fuel prices are a function of global tailwinds, which have driven up crude oil prices.

In the run-up to the 2019 elections, the contours of auto fuel pricing may end up acquiring a sharp political edge, given the stark differences in the handling of the pricing mechanism by the current NDA government and the earlier UPA II government.

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Tellingly, the narrative that under UPA II, it was the government that was subsiding fuel prices for the benefit of consumers, whereas under NDA II, it is the retail consumers who are ‘subsidising’ the government, is gaining traction.

The point is not lost on analysts that international crude oil prices are now $80 a barrel, whereas during 2009, they were ruling at over $120 a barrel, after peaking in 2008 at $147.3 a barrel.

During Financial Year 2009-10, for instance, the subsidy borne by government oil companies on petrol stood at ₹5,151 crore. That came down to ₹2,227 crore during the next fiscal, largely because the subsidy on petrol was discontinued on June 25, 2010 and the government allowed PSU oil companies to price petrol freely.

The subsidy on diesel, however, continued and in the next five years, the UPA II government bore a ₹2.80 lakh crore burden.

The subsidy on diesel was withdrawn on October 18, 2014 by the NDA II government. During Financial Year 2014-15, the subsidy outgo on diesel stood at ₹10,935 crore, which was part-shared by both the governments.

Excise duty collections

When global oil prices came down, the NDA II government hiked excise duty on fuel nine times between November 2014 and January 2016. Since then, it has reduced it only once in October last year.

During Financial Year 2014-15, excise collections from auto fuel were ₹99,184 crore. This grew to ₹2,42,691 crore during Financial Year 2016-17.

The State government collections through Value Added Tax and Sales Tax stood at ₹1,37,157 crore in financial year 2014-15 and grew to ₹1,66,378 crore in 2016-17.

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