Petrol price up by 38 paise in Thiruvananthapuram

Ivan Schwartz
May 26, 2018

Elections later this year in Rajasthan, Madhya Pradesh, Chhattisgarh (all BJP-ruled states) and Mizoram and then the general elections next year are understandably giving the BJP-run government jitters. "There was no instruction from the government to hold prices during that time".

The wheel has come full circle now.

After moving to daily revision of fuel prices in June last year, the government had cut basic excise duty on petrol and diesel by Rs 2 per litre in October last year.

The only logical conclusion one can derive from this is that the government intervenes only when it wishes to and when it's politically expedient, like it was at the time of Karnataka elections.

Oil Minister Dharmendra Pradhan said that the government is in discussion to find a resolution. This revenue generation for the governments via fuels makes it clear as to why the centre and state governments have kept petroleum products outside the GST (the idea of which was one nation one tax).

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"Fuel price hike has a cascading effect on inflation and the Reserve Bank of India will have to front-load interest rate hikes now", said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings in Mumbai. In Delhi, prices reached Rs 77.47 per litre, Rs 80.42 in Chennai, and Rs 80.12 in Kolkata, according to Indian Oil Corp. "In view of the uncertainty in the crude prices globally, a new sense of urgency has developed". Gujarat, Himachal Pradesh, Madhya Pradesh and Maharashtra have since reduced Value-Added Tax on petrol and diesel. The profits for the financial year 2017-18 have more than double from what HPCL made in 2014-15, the same year when PM Narendra Modi became the Prime Minister. However, in Telangana, the tax rate is 35.02% on Petrol and 27% on Diesel. The reason is obvious. Now, it is Rs 16.34 on petrol and Rs 10.02 a litre on diesel. This obviously puts a question mark on government's intentions.

There have been 10 increases and three reductions in diesel prices, resulting in an increase of diesel price by Nu 10.17 a litre. #FuelLootBySuitBoot handle trended on Twitter throughout yesterday, May 22.

Bhutan is also expected to experience hikes in fuel prices. Its political fallout could be as grave as that of the government's lacklustre performance in terms of generation of jobs and virtually all other sectors.

India is particularly at risk from stronger global prices for crude oil as it is the No.3 importer of the commodity buying about 80 percent of its oil needs.

How have taxes accounted for the rise in price of crude oil in India? Petrol/diesel prices affect the common man directly. It needs to act fast, and after examining all aspects. Time is at a premium.

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