The Fuzzy Fiscals of Petro Prices

There is a booming industry in petro price jokes. Videos and words from the past are haunting the BJP in 2018, writes Shankar Aiyar.

Published: 09th September 2018 04:00 AM  |   Last Updated: 09th September 2018 10:46 AM   |  A+A-

petrol price, petrol pump,

Image used for representational purpose only. (File | EPS)

Facts are frequently cruel. 

The price of Brent crude peaked at $132 per barrel in July 2008. The price of petrol in Delhi was Rs 50.62 per litre. The price of Brent hit its lowest in the decade at $30.53 per barrel in January 2016. The price of petrol in Delhi was Rs 59.99 per litre. The oddity, probably a rare instance of pricing, is that the cost of the raw input falls nearly 75 per cent from $132 to $30.53 and yet the price of petrol goes up by over 18 per cent. 

Take another set to appreciate this further. The price of Brent crude in May 2014 was $108 per barrel. The price of petrol in Delhi was Rs 72.14 per litre. India’s purchase price of Brent in September 2018 is $75.53 per barrel. On September 8, the price of petrol in Delhi is Rs 80.38 per litre and Rs 87.77 per litre in Mumbai. And the fuzzy math of petro pricing is fuelling outrage across the country.

Also Read | Petrol price in Mumbai nears Rs 88/litre mark ahead of Bharat Bandh, citizens seek government intervention

There is a booming industry in petro price jokes. Videos and words from the past are haunting the BJP in 2018. Indeed, a video from the 2014 campaign with a housewife chiding the government is among the most forwarded. One WhatsApp forward says, “Name the persons who said this,” and lists these statements:

  • “Government says it has to hike price of petrol due to rising crude oil price. The rate of crude oil has come down from $120 to $90 but government is not reducing the price.”

  • “Petrol price hiked again—another blow to the common man from an insensitive government.”

  • “Massive hike in petrol prices is a prime example of the failure of Congress-led UPA.”

Another says the government is fulfilling the promise of GDP growth—Gas, Dollar and Petrol! There is one tailored for birthday wishes: “May your happiness rise like the price of petrol and your sorrows fall like the Indian rupee.” 

A meme viral on social media asks: Who will score a century first—price of petrol or the price of the dollar? The answer to this quip cannot be linear given the interplay of cause and consequence between crude oil prices and the rupee value of the dollar. The rise in the price of crude oil has implications for the fiscal and the rupee price of a dollar. India imports 83 per cent of its petro needs and the rise of the dollar makes all imports expensive and the rupee less valuable. This phenomenon where input costs drop and product price goes up is caused by what would be characterized as punitive taxation reserved for sin goods. 

Consider the data landscape for a glimpse of high-octane output. Just in 2017-18, the Centre and the states extracted Rs 5.53 lakh crore from the petro economy—or Rs 1,515 crore per day from producers and consumers of petro products. Of this, Rs 573 crore per day was collected by the states and Rs 942 crore per day by the Centre. This includes state and Central levies, corporate and dividend taxes, royalty and dividends. Between 2014-15 and 2017-18, the Centre and states amassed Rs 18,23,760 crore—the states gathered Rs 7.19 lakh crore and the Centre garnered Rs 11.04 lakh crore.

The quantum of collection is propelled by increasing demand and rising rates. Collections from petroleum products shot up from Rs 3,32,619 crore in 2014-15 to Rs 5,53,013 crore in 2017-18. The government’s revenue from the fuel industry went up an astonishing 166 per cent in four years. Repeated increases in levies sent customs collections up 2.5 times, from Rs 4,767 crore to Rs 11,966 crore, and helped double excise collections from Rs 99,184 crore to Rs 2,29,019 crore. 

Thanks to the cascade effect of the pricing formula, the rise in the price of crude in the last year and the fall in the value of the dollar, the revenues of the Central government went up from Rs 12.44 lakh crore to Rs 19.46 lakh crore between 2014-15 and 2017-18, and those of the states from Rs 15.91 lakh crore to Rs 25.02 lakh crore and enabled states to ramp up expenditure. 

There have been raucous calls for bringing petroleum products under GST to bring down the prices. Essentially the argument is that under GST the levies will be brought down. This begs the question as to how the fall in collections or the revenue gap will be bridged. This year, the states earned Rs 2.09 lakh crore in levies. States would loathe letting go of revenues. So how will the states be compensated? And if they are compensated by the Centre, by what magic would the price of fuels come down? 

The issue is tangled in gratuitous political rhetoric as the stand on economic issues depends on where the politico is seated. 

The government has argued that it has virtually ended the subsidy regime, and deployed tax earnings to retire oil pool deficit bonds, fund the creation of infrastructure, and in social sector programmes. Indeed, the capital expenditure of the Centre has gone up from Rs 1.96 lakh crore to Rs 2.84 lakh crore, and total expenditure is up from Rs 16.63 lakh crore to Rs 22.17 lakh crore.  

Fact is the revenue from the fuel economy is critical to the sustenance of fiscal balance. The pronouncements of fiscal consolidation are certainly true. It is equally true that petro revenues contribute over 17 per cent of Central tax revenues and over 8 per cent of the tax revenues of the states. The piety enveloping political proclamations and fiscal fidelity is funded by extraction of taxes from consumers who cannot do without this essential expenditure. Yes, the thesis of public transport merits obeisance, but when it is available, not when there are four buses per 10,000 people.

Stay up to date on all the latest Shankkar Aiyar news with The New Indian Express App. Download now


Disclaimer : We respect your thoughts and views! But we need to be judicious while moderating your comments. All the comments will be moderated by the editorial. Abstain from posting comments that are obscene, defamatory or inflammatory, and do not indulge in personal attacks. Try to avoid outside hyperlinks inside the comment. Help us delete comments that do not follow these guidelines.

The views expressed in comments published on are those of the comment writers alone. They do not represent the views or opinions of or its staff, nor do they represent the views or opinions of The New Indian Express Group, or any entity of, or affiliated with, The New Indian Express Group. reserves the right to take any or all comments down at any time.

  • Shashi

    Even the price of public transport is a vital factor
    1 year ago reply
  • Rajee

    Aiyar previous article was good here he has not given any solution like biofuel on mission basis
    1 year ago reply
  • Chandrasekaran

    The BJP is under severe heat as it is unable to nail petrol price rise. The burdening taxes have become an easy option to counter fiscal
    1 year ago reply
flipboard facebook twitter whatsapp