8.12.14

Oil decontrol a sham


The government has raised basic excise duty on petrol and diesel for the second time in roughly two weeks to mop up gains made by fuel retailers from a sharp fall in global crude prices, a benefit that was supposed to be passed on to consumers under a much touted decontrol of prices in the sector.
Basic excise duty was raised by Rs.2.25 per litre of petrol and Rs.1 on a litre of diesel.The duty was raised by Rs1.50 on both fuels in mid-November, which the fuel retailers offset against their gains to leave retail prices unchanged. In a true market pricing regime, this benefit should be going to consumers by way of hefty reduction in prices. With the government raising the basic excise duty on petrol and diesel, the benefits of fall in crude prices are unlikely to be passed on to the consumers. The government is estimated to mop up Rs.20,000-21,000 crore per year from the two rounds of excise duty revisions. The paltry price cuts announced on Sunday and the move to raise excise duty have dashed the hopes of consumers eyeing a substantial reduction in their fuel bill. On Sunday , the state fuel retailers had reduced petrol price by 91 paise a litre and diesel by 84 paise on the basis of the average crude price in the fortnight ending November 30.
On Friday , the last trading day of that fortnight, the cost of India's crude purchase stood at $70.29 per barrel. This declined to $67.72 a barrel on Monday , December 1, the first day of this fortnight, a drop of $2.57 per barrel in two days. With global benchmarks at five-year low, this gain is expected to widen in the days to come as $60 a barrel price looms. It is this gain that the government is mopping up to garner additional resources for containing the fiscal deficit in the face of a sluggish economy and tepid revenues. Petrol pricing has been deregulated since January 2013 and diesel was deregulated in October. Global crude prices have been declining since June-July , coming down some 36% since then. While petrol price has been reduced seven times since August, diesel price was cut thrice since its deregulation.
The government has reasons to revise the basic excise duty , say government officials.“Excise and customs duty are tools for any government for not only raising resources but also to protect consumers at times of economic exigencies. Customs duty on crude was reduced from 5% to 0%, excise duty was cut on products by Rs.5, even customs on products was also reduced when oil prices were going through the roof around 2008-09,“ said an official.

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