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Petrol (above) and diesel prices on April 2, across four metropolitan cities (Source: IOC website)
WHY FUEL PRICES ARE ON FIRE
Global crude oil prices hold the key to the prices you’re charged whenever you go to refuel at a fuel pump. Crude oil prices had plummeted in the period mid-2014 to mid-2016. But, since July 1 last year, global crude oil prices shot up by 47 per cent, which resulted in your fuel bills soaring.
That is not all, though. A major share of petrol and diesel prices are made up of taxes- excise duty collected by the Centre and Value Added Tax (VAT) collected by the states. As a matter of fact, 48.2 per cent of what you pay for petrol is central and state taxes while for diesel, excise and VAT add up to 38.9 per cent.
Finance Minister Arun Jaitley had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre. In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre during the period that helped the government’s excise mop up more than double its revenues — to Rs 242,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.
Subsequent to that excise duty reduction, the Centre had asked states to also lower VAT but just four of them- Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh- reduced rates while others including BJP-ruled ones ignored the call.
HOW WILD CAN THE FIRE GET
India’s dependency on fuel imports has swelled over the years. From 77.3 per cent in 2013-14, it has gone up to 81.7 per cent in 2016-17. Naturally, with both crude oil prices and imports edging up, India’s import bill is set to rise. The Petroleum Planning and Analysis Cell (PPAC), the statistical arm of Oil ministry had in January estimated that the country’s crude oil import bill will increase by 15 per cent to $81 billion for the full financial year ending March 2018. Every dollar increase in crude oil price increases the country’s net import bill by $0.51 billion. This in turn affects the country’s foreign exchange reserves and accounts for widening of the trade deficit.
Rising fuel prices is one of the main reasons behind spikes in inflation, which result in everybody’s pockets being affected adversely. Zooming inflation also puts the Reserve Bank of India (RBI) in a straitjacket with no room to move on interest rates.