OIL & GAS

Oil price pickle: On fuel duty hike

Union Petroleum Minister Dharmendra Pradhan’s recent remark that the Centre is taking a ‘cautious and conscious approach’ of ensuring a balance in fuel prices and aims to use the resultant savings for welfare is on the face of it unexceptionable.

With global oil prices still about 45% lower than 2019 closing levels despite coordinated supply cuts by major producers, India had an opportunity to pass on the benefit to consumers and provide a fillip to becalmed consumption. That the ‘deregulated’ oil marketing companies chose not to reduce pump prices, even when crude tumbled last month, could be attributed to their caution amid a sharp slump in demand in the wake of the nationwide lockdown.

It is the government’s decision, earlier in May, to raise Excise Duty on petrol and diesel for a second time in less than two months that raises several concerns. For one, subsequent to the latest increase the Centre’s tax revenue on a litre of petrol sold by IOC in Delhi as on May 16 was 1.8 times the fuel’s freight inclusive base price of ₹18.28 and represented 46% of the final retail price of ₹71.26.

With economic activity brought to a near standstill by the lockdown the Centre’s overall revenue prospects have come under severe strain, and from that perspective the government’s move to maximise its takings from transport fuels is understandable.

Still, the fact that the government has consistently tinkered with the duty structure through recent years of largely benign oil prices, undermines the benefits from pricing deregulation that ought to have accrued to oil companies and consumers.

Source
The Hindu
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