For the first time in three years, the Centre reduced fuel taxes and the move was dutifully followed by some state governments. But opinion is divided whether it’s a trick or treat. Announced on the eve of Deepavali and coming after an unimpressive haul during the recent bypolls, the Centre claimed it was a festive gift, while the opposition called it populist for two reasons—one, the setback in the latest Assembly polls and two, eyeing the upcoming state elections, including in key regions like UP. Regardless, the reduction gives a breather to consumers amid rising global crude oil prices.
Strange, but fuel prices have the duality of bringing fortune and misfortune. They fetch revenue prosperity for governments alright, but they also have the potential to topple them. So it’s only logical that the world over, politicians wield it wisely, choosing between economic and political gains. Interestingly, despite the surging pump prices, an IMF official recently recommended maintaining existing fuel taxes in India, as a reduction disproportionately benefits higher-income households, making it ‘highly regressive’. The view was endorsed by others too, citing macroeconomy and the moderate impact that duty cuts have on inflation at just about 0.15%. Truth is, the chasm between headline and household inflation is wide and the Centre’s pick to go with the latter indicates its willingness to part with economic gains, foregoing Rs 35,000–45,000 crore in taxes. This is an about-turn from what the Union finance minister said in August, outrightly ruling out fuel tax cuts citing the burden of UPA-era oil bonds.
That said, we’ve seen the benefits of a seemingly bad decision last fiscal, when the Centre raised fuel taxes during the pandemic year, earning itself a neat Rs 3.9 lakh crore in excise duties. Consumers have chipped in for the much-needed revenue generation drive during tough times, and it’s only natural that the government reciprocates now via tax cuts. If prices breach the estimated $90 per barrel, it should lower duties further and shoulder the taxpayers’ burden