New Delhi: The finance ministry wants states to cut their taxes on fuel even as it ruled out excise duty cuts on its part - with fuel prices hitting a 55-month high.
Petrol price on Monday hit Rs 77.20 a litre in Calcutta and diesel Rs 68.45 a litre, renewing calls for a cut in excise duty to ease the burden on consumers. Brent crude was priced around $74 per barrel, whereas it cost over $100 a barrel in 2013.
The oil ministry reviewed the situation with the heads of state-owned firms and decided the issue of relief lay with the finance ministry and the state governments.
However, a finance ministry official said a reduction in excise duty, which makes up for a quarter of the retail price, is not advisable if the government is to stick to its path of reducing budgetary deficit.
"Excise duty cut would be a political call, but is not advisable if we have to stick to the fiscal deficit glide path outlined in budget," he said.
The government is targeting to reduce the fiscal deficit to 3.3 per cent of the gross domestic product (GDP) in the current fiscal from 3.5 per cent last fiscal.
"Every rupee cut of excise on fuel will result in a loss of Rs 13,000 crore to the government," the official said, adding the oil ministry has not yet officially asked for a cut in excise duty.
The official said states should cut VAT on fuel to ease the burden on the consumer. "Fiscal considerations are far higher than one or two rupee price impact on consumers," he said. "One or two rupee increase doesn't impact inflation."
About 48 per cent of what one pays for petrol is central and state taxes. In diesel, excise and VAT add up to 38.9 per cent.
As the fuel fills up the coffers abundantly, neither the finance ministry nor the states wants to change that situation.
The Narendra Modi-government is hoping geopolitical tensions will ease, reducing the strain on crude. It is, however, not in favour of tinkering with the autonomy given to oil PSUs to revise rates daily in line with the cost.
"Once we have decided on daily price revision, it is not a good thing to tinker with that either through excise or by asking oil marketing companies to absorb prices," the official said. Analysts, however, said crude prices are unlikely to sustain at the current high levels."Crude oil prices shot up 24% in the first three months of 2018, and touched a 40-month high in April, owing to continuous decline in global inventories driven by production cuts by the Organization of Petroleum Exporting Countries (Opec) and geopolitical tensions," ratings agency Crisil Ltd wrote in a report.
"CRISIL Research expects crude prices to average $70 per barrel for calendar 2018, a 27% rise year- on-year. Consequently, India's oil import bill is expected to swell 26% to Rs 650,000 crore this fiscal," the report added.
India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for half of the pump rates.
The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.
Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT, but just four of them - Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh - reduced rates while others including BJP-ruled ones ignored the call.
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 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.
Source: telegraphindia.com