Some states step in as the centre refuses to budge on cutting taxes amid rising fuel prices

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NEW DELHI: The central government has refused to budge on cutting taxes on petrol and diesel as price continue to rise across the country, affecting the life of citizens on a near daily basis.

 

In the absence of any action from the centre, some state governments have taken it upon themselves to cut taxes n petrol and diesel amid rising prices. West Bengal chief minister Mamata Banerjee announced a Re.1 cut in petrol and diesel prices as prices went up to their highest level in Kolkata. During the announcement she said in part, “Our government did not increase sales tax or cess during the time that crude prices were falling. We are going for a price cut now as a token relief for consumers…

This comes in the wake of the TDP ruled Andhra Pradesh government and BJP ruled Rajasthan leading the way in cutting prices by Rs.2 and Rs. 2.50 respectively. The ruling AIADMK in Tamil Nadu criticised the government for not acting on the riding fuel prices. Chief Minister Palaniswami stated that his government might consider cutting taxes but said it is up to the centre to take the lead.

The opposition and other parties carried out a national bandh to protest the rising fuel prices and the government’s inactions. The Financial Express editorial pointed out the fact that the current and previous administrations were to blame. The taxes are higher under the current government but the subsidy burden was higher under the previous, “One of the reasons why the UPA was able to not pass on all the oil price hikes to consumers was by getting oil PSUs to fund them or to simply add to subsidies”.

During the bandh, former Prime Minister Manmohan Singh urged the opposition parties to come together and challenge the Modi government on the fuel price crisis, which he terms “crossed all limits”. As the government continues to push spending, it will be very difficult, approaching an election year for them to cut prices/taxes. A Re. 1 cut results in thousands of crores loss to the exchequer for a year. Global fuel price rise, a weakening rupee and India’s reliance on importing petroleum have not helped matters.

As private investment is reducing, which is during this government and did during the last, the government took the option of reviving public investment; the way to fund this was by increasing taxes on petroleum products and to put aside a significant portion of this for infrastructure through a cess. Finance Minister Arun Jaitley, a few months ago dismissed the idea of a cut in central excise duties on petrol and diesel by stating it was a trap to push the country into ‘unmanageable debt’.

The hike in fuel prices has affected the agricultural sector as well. Farmers using tractors and other equipment that require fuel for functioning have their daily and monthly expenditure increased a significant amount. With the sector going through troubling times as it is, the rising fuel prices have increased the financial burden.

As mentioned earlier, external factors also play a role here. India’s import bill has gone up due to high crude oil prices. Falling exports from Iran and political instability in oil producing countries like Venezuela contribute to high fuel prices. Internal factors can be controlled. Almost half of the current fuel prices are duties and taxes. Duties and taxes have distorted the market pricing policy, which was intended to pass on price benefits to the consumer. Combined with a weakened rupee, it is essential that the fundamentals of the economy, particularly the macroeconomic factors be stable for there to be no adverse affects or shocks to the economy.

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