This week opened with global oil prices sharply falling on fears of trade disruptions, and a looming recession triggered by Donald Trump’s new tariffs. The global benchmark Brent crude dropped almost 4 percent to less than $63 a barrel, after a 11 percent slump last week, while West Texas Intermediate was at just over $59. But India, which imports nearly 90 percent of her crude oil needs, has not passed on the benefit to domestic consumers. Instead, it has raised excise duty on both petrol and diesel by Rs 2 a litre to boost its own revenues. In this opaque jugglery of imposts, the oil marketing companies have been asked to hold the pump prices. Meanwhile, the windfall gains are being diverted to shore up government revenues dented by income tax concessions given in February’s Union budget.
Petroleum Minister Hardeep Puri claimed the revenue gains would defray the losses incurred from the sale of subsidised LPG cylinders. Dynamic pricing is supposed to be based on actuals. However, what we see is a one-way street: pump prices jump when global crude goes up, but not the other way round. Retail prices in India have see-sawed, but have broadly stayed on an upward trajectory. Between November 2014 and January 2016, the government had raised excise on petrol and diesel nine times, cashing in on a global crude price crash and not passing the benefits to the consumer. Excise was reduced by Rs 2 a litre in October 2017 and again by `1.50 in 2018; but in July 2019, it was back up Rs 2. The Covid outbreak again saw a steep fall in crude prices, but these were skimmed off with huge excise hikes in March and May 2020.
But at present, consumer demand is flagging and the government has been stepping in to stoke spending by offering cash transfers to the poor and tax concessions to the middle class. Fuel costs contribute as much as 7.5 percent to the basket that makes up the consumer price index and decides the headline inflation rate. In this scenario, it makes sense to pass the benefits accruing from the falling crude prices to the common man, rather than to government coffers. The Union government, which has hinted that the excise on fuel could be lowered, must bite the bullet