Savings to consumers on account of lower prices come despite higher consumption of both fuels
Six excise duty increases on petrol and diesel since November 2014 may have added Rs 25,700 crore to the government kitty, but consumers are no less rich. Largely automobile owners, consumers together gained a little over Rs 60,000 crore from lower petrol and diesel prices in the first seven months of the current financial year.
On an annualised basis, the total hike in excise duty can add Rs 92,915 crore to the government kitty based on 19.1 million tonnes of petrol and 69.4 million tonnes of diesel Indians burnt last financial year. The total increase in excise duty has been Rs 9.65 a litre for petrol and Rs 7.97 a litre for diesel. This could have directly translated into reductions in retail prices but the government decided to use the fall in global prices to allow state-owned oil refiners to partially pass on the benefit through periodic price cuts.
The savings to consumers on account of lower prices came despite higher consumption of both fuels. Based on the average price of petrol in April-October 2015 and during the same period last year, petrol is Rs 6.82 a litre cheaper. With 12.6 million tonnes of petrol used, consumers had to pay Rs 12,090 crore less during the seven-month period. As the retail price was lowered by another Rs 0.50 on Tuesday, the savings in the hands of consumers will increase further. Data from the ministry of petroleum and natural gas shows that lower prices also meant higher use of petrol, which rose by about 15 per cent to 12.6 million tonnes during April-October 2015.
Since diesel use in India is many times higher than that of petrol, the savings for consumers during the seven months starting April 2015 is much higher at Rs 47,942 crore. Together with petrol, the savings in the hands of consumers is Rs 60,032 crore. For diesel, the average price during April-October was Rs 9.3 a litre less than the same period last year. Diesel use also increased 7 per cent to 42.6 million tonnes from 39.8 million tonnes during April-October 2014.
The scope for manipulating revenue collection has been reduced ever since the Centre gave up an ad-valorem duty structure for excise duty on petroleum products. Ad-valorem excise duty allowed the government to take away a fixed percentage of the price as tax. This meant that when global prices went up, there was a cascading impact with the government cornering a higher share in tax. To avoid this, the previous United Progressive Alliance government decided to switch to a combination of ad-valorem and specific excise duty for petrol and diesel when global prices started rising.
So, in 2005, based on the recommendations of the Ashok Lahiri committee, P Chidambaram, the then finance minister, introduced an excise duty of eight per cent plus Rs 5 for petrol, replacing the 23 per cent excise duty. For diesel the excise duty was kept at eight per cent along with an additional specific duty of Rs 1.25 a litre.
Again, while presenting his budget in 2008, the finance minister completely did away with the ad-valorem component of excise duty on unbranded petrol and diesel, though it was retained in branded versions. The duty was fixed at Rs 14.35 for a litre of petrol and Rs 4.60 for diesel.
A few months down the line, in June 2008, when Brent crude touched a record high of $140 a barrel, the government was forced to allow a price increase, and to insulate some of its impact, it brought the excise duty on petrol down to a flat rate of Rs 13.35, and diesel to Rs 3.60 while making it nil on cooking gas and kerosene.
Decontrol of petrol and diesel prices since June 2010 and October 2014, respectively, has ensured that there is no subsidy outgo from the government or the oil marketing companies.
It, however, also means that consumers are charged full parity with global prices though the government since November 2014 has been increasing the excise duty in small doses.
The additional revenue is expected to help the government tide over its budgeted revenue shortfall. The 34 per cent increase in excise duty collection of Rs 4,38,291 crore is largely attributed to the increase in excise duty on petrol and diesel.