Does hike in fuel prices help government to cover up its revenue deficit?

In October 2020, the union government said that the taxes on petrol and diesel will be increased in order to mobilize additional revenue in COVID-19 relief.

Amid the rise in the global prices of crude oil and the fall of rupee against the dollar, the price of diesel and petrol will fluctuate and continue to rise unless there is a mechanism in place.

The rise in the prices of essential goods is burning the pockets of the consumers who have to spend an extra penny each day as there is a record hike in prices since January 6, 2021.

The highest today comes from Sriganganar, Rajasthan, where the petrol costs Rs 101 per liter, which otherwise costs 98.40.

MS Education Academy

India imports 84 percent of its domestic fuel demand and that is why the changes in the global prices determine its high and low here.

But when we take note of the domestic taxes and global price, the figures reveal a different story.

Ever since the NDA government came to power, they have been charging high excise duty on fuels.

“The price hike is affecting me a lot. My father won’t let me touch his bike unless it is very important. Even for a liter, it is almost 100 rupees and that is very high. I hope there is a fall in the price soon”, said Rajkumar, BBA third-year student from Osmania University.  

How the price hike finances the contingency

In October 2020, the union government said that the taxes on petrol and diesel will be increased in order to mobilize additional revenue in COVID-19 relief.

Last year, a report by the State Bank of India stated that the government can use the low crude prices to increase its excise duty on the diesel and petrol to raise additional resources for keeping the rising deficit under check.

This way, the government may use the revenue generated through high excise duty for meeting the expenses of the COVID vaccination drive in the country.

Since 2014, time and again the Modi government has increased the excise duty on auto fuels simply to raise revenue for welfare schemes. The revenue generated from these is used to fund the infrastructure and other developmental activities.

But there is no relevant data that can show under which departments the revenues of the excise duty are used. 

The people are kept in dark and there is no proper disbursal of funds for many welfare schemes.  The minority welfare department does not get much share in the budget. Why? Where is the money going then?

Can the government control the prices?

The prices of fuel cannot have a cap as dynamic pricing is being followed by the country.  However, the government can possibly announce a uniform value added tax (VAT) across the country to be levied by each state and a cap on excise duty.

For this, the union government can roll back its enabling power of an 8 percent hike on diesel and petrol prices approved last year by the parliament.

Since self-reliance is a far-flung thing for diesel and petroleum products in India, both the state and central government can consider not levying high taxes from the people to fund its revenue needs. 

“Compared to the UPA regime, the prices of fuels are ever-increasing despite the fall in international market prices. Today after every two days we see an increase of 2 rupees. This can be attributed to the private players entering into the sector and the rules and initiatives of the government. Hence, there has to be proper, genuine, and accountable handling of the sector and I hope it happens sometime soon,” said Syed Inam Ur Rehman Ghayoor, a research student of a school in Hyderabad.

In the long run, like the other countries, keeping in view the global climate, our country can also start replacing the diesel- and petrol-powered vehicles to hybrids or electric powered vehicles to some extent. 

Maybe the government can also take away the teeth of the Reliance petroleum and regulate the revision of prices as private players only tend to make profits and maintains upward revision of prices.

Before mulling to roll out the green tax, which will again be a burden on people, the government should cut on its own levy and to consider bringing it under GST.  

Subscribe us on The Siasat Daily - Google News
Back to top button