Centre unstirred as fuel prices continue going north
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Centre unstirred as fuel prices continue going north

Petrol and diesel prices went up to a record high on Tuesday generating fears of spiralling inflation.

While petrol price was raised by 16 paise per litre, that of diesel was up by 20 paise. Requests to the Centre to bring down the excise duty appears to have fallen on deaf years. The election year approaching, the Government claim was that there was limited fiscal space to affect revenue collection.

Nearly half of the fuel price is made up of taxes. While the Centre currently levies an excise duty of nearly Rs 19.50 per litre on petrol, it is more than Rs 15.33 on diesel. States levy a tax ranging between 20 and 40 per cent.

The reason attributed to the spiralling fuel price is the rising global price of crude oil which has crossed $78 a barrel. Coupled with this is the free fall of the rupee against the dollar making Imports very costly.

A cut in taxes will certainly make the fuel cheaper. The claim of the Centre is that this would adversely affect current account and the fiscal deficit.

It is feared by economists that the higher crude price could see the country's fiscal deficit cross the 3.3 per cent target by the end of this fiscal.

Moreover, in the wake of the election year in 2019, the Centre does not want to have any check on revenue means as development projects may take a hit.

Risks of India breaching the 3.3 per cent fiscal deficit target for the current financial year ending March 31, 2019, as higher oil prices will add to short-term fiscal pressures.

"We already know that there will be a hit on current account. Knowing that we can't disturb the fiscal deficit, we should rather be fiscally prudent," the official in the finance ministry said. While fiscal deficit means expenditure higher than income, current account deficit (CAD) is the difference between inflow and outflow of foreign currency.

In an election year, the spending cut is not an option, the official said reasoning that it would hamper government's spending on development schemes.

With fears of US sanctions on Iran, crude price is expected to continue the upward movement as there are fears of a hit on supplies.

While the Modi Government is mum on the fuel price rise, it has to noted that even when crude price was above the$100 a barrel, fuel price never rose to such levels. During the assembly election time in a few States recently, prices remained untouched and the day elections were over, prices began shooting up.