Why Do Indians Have to Pay More for Fuel, When Global Crude Oil Prices Are the Lowest in Decades?

Social Commentary

Why Do Indians Have to Pay More for Fuel, When Global Crude Oil Prices Are the Lowest in Decades?

Illustration: Reynold Mascarenhas

India went into a nationwide lockdown over a month ago, like many other countries across the globe. With people being told by their governments to remain at home, there was a steep drop in demand for auto fuels, and last month saw global prices of crude oil drop to the lowest they’ve been since 1999. However, in India, that drop in prices did not benefit consumers, as oil marketing companies (OMC) used the falling prices of crude to offset their own losses due to decreased demand. And now, the central government seems to be following a similar strategy, by using petrol and diesel prices as a source of revenue generation by hiking excise duties on both.

The hikes of ₹10 and ₹13 on petrol and diesel, which will come into effect on May 6 to take advantage of the relaxed restrictions on movement during Lockdown 3.0, are likely to affect the gains OMCs were making, reports say.

While it was unfortunate for consumers that the drop in global crude oil prices did not benefit them at the petrol pump, this time they can consider themselves lucky to be left out of the equation. The excise duties being hiked are not expected to cause a rise in the retail price, as multiple reports have quoted industry officials as saying that the OMCs will adjust for the hike against the recent fall in global crude oil prices.

The central government seems to be following in the footsteps of the Delhi state government, which itself hiked the Value Added Tax (VAT) on its domestic fuel prices, leading to a price rise for the consumers, earlier this month. Both state and central governments are seeking to increase their revenue collections through fuel duties as the coronavirus pandemic continues to slow down the economy.

Now, like everything the central government does, the hike in excise duties has its share of ardent supporters. There are those who see the government raising duties during the pandemic as a masterstroke, while ignoring the fact that they’ve been denied relief from the worsening economy themselves.

But there are others who have been more critical of the move. In fact, there are people who have been finding old videos of when Prime Minister Narendra Modi was Chief Minister of Gujarat and he would criticise the then-Congress-led government at the centre for raising duties and taxes on fuel to the detriment of consumers.

In India, where the base price of fuel is only about 40 per cent of its final retail price, with various central and state government taxes, and transportation costs making up the rest, such scrutiny of what exactly makes up the cost of fuel citizens use to run their vehicles is to be expected.