Huge spike in fuels prices
• Four factors influencing rise in prices:
Crude oil, freight and processing charges to the dealer.
Excise duty charged by the
Dealer commission to the gas station.
Value Added Tax levied by the state government.
Impacts of taxes on fuel price hike
• Increasing central and state taxes on fuel – key
reason for high fuel prices.
• 2020: Centre hiked the excise duty on petrol and
diesel by Rs. 13 and 16 per litre.
To shore up revenues.
• Example: In Delhi, central and state taxes – 57 % of
pump prices of petrol and is about 51.4 % for diesel.
• Central government has not cut central taxes – taxes
on auto fuels should be cut to curb inflation.
Fuel price hike and inflation
• When fuel prices rise, so does inflation.
• Higher the inflation – lower will be the inflation-adjusted returns.
• India’s retail inflation became 6.3% in May 2021- breached the upper
limit of RBI (6%).
• ICRA: government may cut cess levies on retail prices
of petrol and diesel to ease prices.
• Petrol consumption is estimated to grow 14% and diesel 10% year-on-year in FY22.
Reason: Recovering economic activities and mobility – easing of curbs and accelerating Covid19 vaccinations.
• Higher consumption of fuels – support a rise in the
indirect taxes levied on them. • Growth in consumption would result in Rs. 40,000 crore of extra cess collections.
• Existing fuel price can be cut by ₹4.50 per litre for
petrol and diesel.