By his own admission, Prime Minister Narendra Modi’s ‘good luck’ lowered fuel prices in the past. Now, that lucky charm is on the turn, with Brent crude trading above $70 from a low of $27.1 per barrel in 2016. On Friday, prices at the pump touched a four-year high in India, threatening to reverse the declining inflation trend. Further price hikes, in the run up to elections, may choke public sentiment, trade deficit, non-GST revenue, and pressure refiners’ margins and their dividend outgo. As former finance minister P Chidamabaram observed, the government that lived off “an oil bonanza,” is now “clueless and floundering”.
Unarguably, we pay more for fuel than smaller countries Nepal and Pakistan, thanks to higher taxes. If petrol is priced at `74 a litre, roughly half, `35 includes taxes. To please the public, state-run retailers were asked to absorb losses up to `1 per litre, which is crumbs on the table. The government can reduce excise duty, like it did last October foregoing `26,000 crore revenue, but it will pinch its own coffers hard, thanks to the botched GST rollout. Alternatively, fuel can be brought under GST to rationalise pricing. Even with the highest tax slab of 28 per cent, it will be lower than the prevailing taxes on fuel, but getting states’ consensus is a challenge as revenue from fuel is their meat, drinks and dessert.
Global crude prices hit a three-year high with major producers like the US, Saudi Arabia, Russia and OPEC nations tightening supply to prop up prices. With the supply-demand equation evening out, price hikes appear certain. The onus is on the government to rework its import strategy, including sealing long-term deals at favourable prices or exploring alternatives like gas, which accounts for a mere 6.5 per cent of our energy mix as against the global average of 24 per cent. But before that, the Centre has to first lower taxes. As they say, simple choices are never easy, but this time it’s no dice.