Fuel prices in West Bengal, Maharashtra and Karnataka jumped by Re 1 a litre after the respective state governments tweaked their VAT/tax rates to shore up their finances but pump prices in all other states have remained unchanged for the last 17 days.
These states have grabbed the opportunity provided by state-run retailers holding pump prices -- in spite of crude’s slide – as well as petrol and diesel sales dropping by 17 per cent and 26 per cent, respectively, due to the lockdown. Industry watchers said other states too could follow suit.
Sources said the retailers are not reducing prices to create headroom for another possible excise duty hike. They are also offsetting the Centre’s Rs 3-per litre duty-hike of March 14 to soak up the benefit of oil dropping 31 per cent to $30/barrel. Petrol and diesel rates were left unchanged then. The companies also have to recover the premium on BS-VI fuels, which company executives said was not being charged at the moment.
The three state governments appear to be taking a rain check by raising VAT/local levy. Consumers will not feel the pinch immediately since most are confined to their homes and the time gap before they are allowed to venture out will lead to a soft landing. But the higher tax will yield additional resources once life returns to normal. If pump prices rise subsequently due to oil reversing its fall -- as Brent crude did by 33 per cent to $32.78 on Thursday, the state government will not be blamed.
According to IndianOil chairman Sanjiv Singh, it would be “unrealistic” to tune pump prices to international product prices, which were $3-4/barrel lower than crude. “Crude and products have separate dynamics. Crude is falling due to oversupply. But products are purely guided b demand which is plunging due to coronavirus impact. Fuel prices are at a comfortable level. It will not be right to move (pump prices) them according to unrealistic global prices because if the government raises excise — rightly so at this time — then fuel prices will have to be raised also,” Singh said.
Soon after the last round of excise duty hike, the government took authorisation from Parliament to raise excise duty on petrol and diesel by Rs 8 per litre each in future. The BJP-led government had between November 2014 and January 2016 raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.
In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped the government's excise mop-up more than double to Rs 2,42,000 crore in 2016-17 from Rs 99,000 crore in 2014-15. Excise duty cut excise duty by Rs 2 in October 2017 and by Rs 1.50 a year later. But, it raised excise duty by Rs 2 per litre in July 2019.
