Central and state governments are responsible for the highest ever price of petrol and diesel

The prices of petrol and diesel have touched the highest ever levels of Rs 100 per litre and Rs 90 per litre respectively in many parts of the country. The costs of personal transport and goods have increased as a consequence and are putting an unbearable burden on working people. Instead of providing any relief, excuses are being given. The Prime Minister held the previous government responsible for high prices, and is indirectly blaming the international price of crude oil. The Petroleum Minister directly put the blame on the rise in international crude price. The Finance Minister did not provide a direct explanation. Instead she said that she is in a dilemma (dharma sankat) about the rising prices of petrol and diesel. She added “..it is a matter for which the Centre and state governments need to work together and see whether there is a way to fix the issue”.  This just reveals that the ruling class and its spokespersons – the Prime Minister and his colleagues, do not want to give an honest explanation to the people for the rising petrol and diesel prices. They clearly do not want to commit to bring the prices down.

The facts show that the central government and state governments are responsible for this unbearable burden; the international crude price is not responsible. Both the central and state governments have been increasing taxes on petrol and diesel year after year. Whenever the international crude price goes down, the benefit of lower price is not passed on to people, instead taxes are raised to keep the price of petrol and diesel at the same level or higher. But when the international crude price rises, the price of petrol and diesel is correspondingly increased.

Today, the total tax on petrol is around 200 per cent and on diesel it is around 160 per cent, many times more than even on goods defined as ‘luxury’ by the government!

When the international crude oil price was US$108 per barrel in 2014, the price of petrol in Delhi was Rs 71.51 per litre and of diesel Rs 57.28 per litre. Today when the current international crude price is about 40% lower at US$ 63 per barrel, the petrol is around 25% costlier at Rs 89.29 per litre and diesel 40% costlier at Rs 79.70 per litre.

In 2014, taxes by the central government on petrol were Rs 9.48 per litre and on diesel Rs 3.56 per litre. Between 2014 and 2019, the central government increased taxes nine times. At the beginning of 2020, central government tax on petrol was Rs 19.98 per litre and on diesel Rs 15.83 per litre.

When due to the pandemic and consequent fall in demand, crude prices started falling in the beginning of 2020, the central government increased taxes on petrol and diesel in March 2020 by Rs 3 each per litre. When crude prices crashed to below $ 20 by the end of April 2020, the central government, instead of passing on the benefit of the low price to the people, it levied additional hefty tax burdens of Rs 10 per litre on petrol and Rs 13 per litre on diesel. As of now, the central government taxes on petrol are Rs 32.98 per litre and Rs 31.83 per litre on diesel.

State governments put additional burden on people by levying VAT (Value Added Tax) and cess. Since VAT levied by state governments is ad valorem (calculated as a percentage of the price after including the tax levied by the central government), every increase by the central government leads to higher VAT. For example, the Government of Maharashtra levies VAT of 25% on petrol and 21% on diesel. In addition, it levies a cess of Rs 10 per litre on petrol and Rs 3 per litre on diesel. The VAT in some states is as high as Rs 38%.

Though two large refineries are located in the city of Mumbai, the petrol price has touched Rs 96 per litre for petrol and Rs 87 per litre for diesel due to high taxes of the state government.

Even with the current higher crude price, the price before taxes and dealer commission is only Rs 32.23 for petrol and Rs 33.83 per litre for diesel.

It is the astronomically high level of taxes by the government which is wholly responsible for such high prices of essential commodities like petrol and diesel. The government wants to hide its anti-people taxation policy by blaming the international crude price or by claiming that it is an irresolvable problem.


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