If the trend of rising international crude prices coupled with high Central and state taxes continues, Madhya Pradesh may soon join Rajasthan in recording pump prices of over Rs 100 per litre. The turning point was in April 2020, when international fuel prices touched rock bottom. Though consumers thought they would reap the benefits, the Centre and the states saw it as an appropriate moment to earn some easy revenue. They hiked their respective taxes on fuel while the consumer kept paying the same price despite low global crude rates.
Now when international prices are rising, governments have been unwilling to cut taxes in order to provide fuel at the previous rates. As a result, the average fuel price in India is among the highest in the world — Rs 93 per litre for petrol and Rs 88 per litre for diesel. From this, the Centre corners Rs 33 on every litre of petrol sold and states about Rs 20. This is reflected in the skewed correlation between global crude prices and the rate at the pump. Since May last, global petrol prices have risen by just Rs 3.53. But retail prices went up by Rs 20. States claim they have been deprived of the entire 41% of their excise share because the Centre levies cess which is not shared with them. Therefore, they are forced to play with the duty structure on fossil fuels (and liquor).
If the state’s compulsions are reasonable, it is difficult to accept the Centre’s reasoning that pump prices are high due to cartelisation among oil-producing nations. If market forces are indeed behind the rise, why was there an 18-day pause when four states and a UT went to the polls recently? And as soon as counting was over, rates were jacked up half a dozen times, though global prices did not rise proportionally. It is also a mystery why PSU oil companies charge nearly the same price, despite different efficiencies. As inflation has crossed the RBI’s upper band, the Centre should provide some relief to the consumer, who has already been kneecapped by the pandemic.