Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
Once you are done reading this op-ed, you will be able to attempt the below.
“Despite lower international crude oil prices, domestic fuel prices in India is increasing under free pricing regime.” Critically examine
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Fuel pricing policy in India and its implications
- Taxes need to be eased to make petrol and diesel more affordable to consumers
- Daily pricingis now being seen by many as a tactic to increase prices while allowing the government to escape any political backlash.
- The government, has ruled out any change to the current pricing policy arguing that it ensures the benefit of lower international crude oil prices is passed on to domestic consumers.
- A comparison of crude oil prices with domestic petrol and diesel prices, suggests that this argument is far from convincing.
- In 2012, a barrel of crude costs around $120, a litre of petrol was sold at around ₹65 in retail fuel stations.
- Today, when the Indian crude basket price has dropped to around $50, the retail price of petrol is well over the ₹70 mark.
- The deregulation of petrol and diesel pricing, in 2010 and 2014 respectively, caused fuel prices to be determined primarily by the forces of supply and demand rather than input costs
Increase in price- Reasons
- Still, lower international crude oil prices should have led to lower domestic fuel prices even under the free pricing regime, if heavy taxes were not imposed on domestic fuels.
- Excise duty and value added tax are the main reasons in this regard
- The government’s excise duty collection has more than doubled during the period 2014-17
- This suggests that the government, not the consumer, has been the biggest beneficiary of lower crude oil prices since 2014.
- These taxes impose an artificial limit on the amount of supply that can be profitably sold to the Indian consumer, which in turn leads to consumers paying higher prices for petrol and diesel.
- GST even at its highest slab of 28%, would substantially lower the current tax burden on fuels.
- Apart from making petrol and diesel more affordable to many more people in the lower rungs of the economy, it will also decrease the economic distortions caused by extraordinarily high taxes imposed on automobile fuels that are widely used.
- Along with lower taxes, greater competition in the fuel retailing market will allow further cost efficiencies to kick in and lead to lower prices for consumers.