With the petrol and diesel prices crossing a new landmark of Rs 80 per litre and Rs 70 per liter [in Delhi], there is a big hue and cry in political circles.
The sharks prowling for an opportunity to lambast Modi – government are demanding a steep cut in the central excise duty [CED] to enable corresponding reduction in the price to consumers. They argue that during the last 4 years, the centre allegedly mopped Rs 1100,000 crore from increase in CED. A portion of this money could be used to giver relief, they contend.
The international price of crude had declined from US$ 117 per barrel in November 2014 to US$ 28 per barrel in January 2016. Leveraging this, the government increased CED on petrol from Rs 9.8 per litre to Rs 21.5 per litre and on diesel from Rs 3.8 per litre to Rs 17.3 per litre. In October 2017, this was reduced to Rs 19.5 per litre on petrol and Rs 15.3 per litre on diesel.
Undoubtedly, the increase in CED on petrol and diesel gave a boost to the centre’s tax collection from petroleum products: from Rs 106,000 crores during 2014-15 to Rs 186,000 crore during 2015-16, Rs 253,000 crores during 2016-17 and further to Rs 268,000 crore during 2017-18. The cumulative extra mop up over the collections during 2014-15 was Rs 389,000 crore.
For 2018-19, the government has budgeted for Rs 258,000 crore from levies on POL [including road and infrastructure cess on petrol and diesel]. So, the collection during the current year is expected to be higher than 2014-15 by Rs 152,000 crore. All put together, over a 4 year period [2015-16 to 2018-19], the centre would have got Rs 541,000 crore extra, courtesy hike in CED.
Considering that as per 14th Finance Commission recommendation, 42% of the central tax receipt has to be shared with the states, on a net basis, the extra accrual to the union government – on this score – would be about Rs 314,000 crore. It is therefore, preposterous to allege that Modi – dispensation has mopped up a whopping Rs 1100,000 crore by way of increase in CED.
Even Rs 314,000 crore is a good number and one might argue, in these difficult times, why not return a portion to consumers? But, we should not forget that the government is in the midst of undertaking massive investment in building infrastructure and agriculture. The infrastructure projects [highways, expressways, rural roads, rails, houses etc] worth over Rs 600,000 crore are already underway. In agriculture, work on 99 irrigation projects involving investment of close to Rs 100,000 crore is in progress.
These and numerous other projects aimed at substantial augmentation in both the physical and social infrastructure [schools, hospitals, wellness centres, medical institutes, toilets etc.] besides the multitude of welfare schemes for the poor such as LPG connection, free electricity connection for all etc. require huge resources. All of the revenue including from petroleum taxes is being put to use for these high priority areas.
The present government is also making efforts to garner additional revenue. For instance, during 2017-18, it collected Rs 1000,000 crore from direct tax – over Rs 350,000 crore more than the collections in 2013-14. It is saving lot of money [about Rs 75,000 crore annually] by plugging leakages in implementation of welfare schemes e.g. subsidy on fertilizer, food, LPG etc.
With these gargantuan efforts – both by way of additional resource mobilization and savings – the government has been able to revive and sustain the tempo of investment, more so when capital spending by private companies is sluggish. Then, to ask Modi to surrender a good slice of petroleum taxes [every rupee reduction in CED will result in a loss of about Rs 13,000 crores in revenue] will be a huge setback. The alternative of increase in fiscal deficit and more borrowings will be no less painful.
It is pertinent to note that even in 2013 [under UPA – II], the retail price of petrol had crossed Rs 80 per litre. That was despite the then government issuing oil bonds to oil marketing public sector undertakings [PSUs] worth Rs 200,000 crore. In plain words, this means borrowing money to pay for what the consumer does not [but for this, the price would have been much higher]. The liability for repaying that money is on the present government.
At present, the external factors are solely responsible for the rise in price of petrol and diesel. Apart from tight global demand-supply – triggered by OPEC decision to cut production – India in particular, is affected by impending US sanctions on Iran which supplies 11% of our oil imports and drying up of supplies from Venezuela [it meets 7% of our imports]. The delay in start of shale gas supply from US has added to the woes.
Nonetheless, this is a transient situation and that should blow over soon. The top brass in the ruling dispensation is locked-in serious engagement with the US administration to ensure that India gets a waiver from sanctions on Iran. Besides, as alluded to by secretary, economic affairs in a recent interview, the Rupee is expected to stabilize in the US$ = 68-70 range. These developments should help in providing the much needed relief.
From consumers’ perspective, look at the precise impact. For a bike rider who travels 50 km daily to-and-fro to office. Taking efficiency of 50 km to a litre, his daily consumption of petrol is 1 litre. During the last one year, its price [in Delhi] has increased by Rs 10 per litre. So, he has to burn Rs 10/- more every day. With 20 working days, he will end up spending Rs 200/- per month extra.
A question we all need to ask is: for the sake of nation building and helping the poor, can’t we afford to spend this much more? Indeed, with better roads, even this will be more than offset via better efficiency and less wear and tear. That apart, this apparent hole in the pocket is for a temporary period.
The hue and cry over the price rise is unwarranted. Yet, if the government is pressurized to reduce CED, this will lead to increase in fiscal deficit, exacerbation of inflationary pressure, higher interest rate and slowdown in growth. Besides, funding of welfare schemes for the poor will be seriously compromised.
The political sharks are not unaware of these catastrophic consequences. This is part of their agenda to dislodge Modi. It is for the public to ensure that they don’t succeed.