Spiralling fuel price; GST is a plausible solution
News analysis

Spiralling fuel price; GST is a plausible solution


A century in cricket is welcome but not when it comes to fuel prices or the rupee value against the dollar.  If unchecked, the unrelenting fall of the rupee and the ever-rising price of petrol and diesel might see the two touches the century-mark, not what the Government and its people desire.

Finance Minister Arun Jaitley, who has been closely associated with the Board of Cricket Control of India(BCCI), should know it better. He bats for Goods and Services Tax (GST), but ducks when it comes to the same for fuel prices.

The burning hole in the common man's pocket because of fuel prices may see good welcome to the bandh called by the Congress on Monday and a nationwide harthal the same day by the Left. Crude oil price has been hovering around the $78 a barrel and the rupee slide continues with it already hitting a record Rs 72 against the dollar. This has resulted in fuel prices being hiked further to an all-time high.

Significantly, during all discussions of fuel prices, the names that crop up are of Prime Minister Narendra Modi and Jaitley. But there is no mention of Dharmendra Pradhan, the Minister for Petroleum and Natural Gas, might be because he has little role in the present economic situation.

Former Finance Minister and Congress leader P Chidambaram commented, “The relentless rise in prices of petrol and diesel is not inevitable because the price is built up by excessive taxes on petrol and diesel. If taxes are cut, prices will decline significantly.”

Nearly half the retail price of petrol and diesel is in the form of taxes. The Centre takes Rs 19 on a litre of petrol as excise and Rs 15 on diesel. States collect between 25 and 40 per cent as value-added tax. The Centre argues that oil marketing companies import crude and with the rising global prices and the sliding rupee their import bill is soaring.

When the Modi Government made introduction of GST, a regime of one-tax for the entire country for several goods and services, a big progressive step, petroleum products were kept out of its ambit. In between, there was talk of introducing GST for petroleum products that would include petrol, diesel, crude oil, natural gas and aviation fuel. But suddenly that does not appear to be of interest to the Union Government.

GST is fixed within four tax slabs of 5,12,18, and 28 per cent and is based on the total of central and state levies as before July 1, 2017, when it was introduced across the country. Even if in the highest slab there would be a tax very much less than what people have to pay for fuel.

But that would mean a loss of revenue for both the Central and State Governments, even when they claim to be for the welfare of the people. If petroleum products are brought under GST, rough calculation is that the Centre would lose nearly Rs 20,0000 crore. States too would lose heavily on VAT.

Even when crude prices were low, the Centre did not bring down the excise duty but kept raising it. This denied the consumer the benefit of a lower price as that of fuel was linked to the international one.

As a result, excise collection from petroleum products more than doubled in the last four years and VAT collection of States also went up.

And now with general elections slated for next year, welfare schemes as part of the run-up to the poll would need huge amount and the Centre cannot afford to lose Rs 20,000 crore. But then, 19 States are under BJP rule and people there will be voting to elect a new Parliament.

Worse still is the fact that in the present geopolitical scene, a reimposing of US sanctions on Iran and the free-fall of the rupee will only worsen the situation. The Government will be forced to act as continued fuel price rise will trigger inflation. The Opposition protest could turn to be a timely move to take political advantage.