Rising prices of petrol and diesel have been a major concern for the common man in recent times. India's Finance Ministry is now finally considering to cut excise duty on petrol and diesel to relieve the impact of record high domestic prices, as has been revealed by three government officials close to the discussion. The price of crude oil has doubled over the last 10 months, contributing to record fuel prices at fuel stations in India. Taxes and duties account for roughly 60% of the retail price of petrol and diesel in the country, the world's third largest consumer of crude oil.
With coronavirus pandemic hitting economic activity in the country, the government raised the taxes on petrol and diesel twice over the last 12 months to boost sagging tax revenues instead of passing on the benefits of low oil prices last year to consumers. The Finance Ministry is now in consultation with some states, oil companies and the oil ministry to figure out the most effective way to reduce the tax burden on the consumer without federal finances taking a huge hit.
"We are discussing ways in which prices can be kept stable. We will be able to take a view of the issue by mid-March," said one of the sources. The sources also said that the government first wants the oil prices to stabilize before cutting taxes, as it does not want to be forced to change the tax structure again, should crude oil prices rise further. Nirmala Sitharaman, India's Finance Minister, recently said, "I can't say when we will reduce taxes on fuel, but (the) centre and states have to talk to reduce fuel taxes".
High fuel prices has even prompted some Indian states to cut state-level taxes on petrol and diesel to rein in prices. One of the sources said that a decision on fuel taxes may only be made following a meeting with OPEC (Organization of the Petroleum Exporting Countries) and major oil producers, also known as OPEC+, later this week. The source said, "There is an expectation that OPEC+ would agree to ease oil output curbs, we hope oil prices will stabilize after their decision."
India has called on OPEC+ to ease production cuts as higher crude oil prices are affecting fuel demand in Asia's third largest economy and is also contributing to inflation. Based on government data, the federal government and states together raised some 5.56 trillion rupees ($75.22 billion) in revenues from the petroleum sector in the fiscal year ending on March 31, 2020. In the nine months of the current fiscal year (April-December 2020), the government has raised about 4.21 trillion rupees in revenue from the petroleum sector, and that's despite a decline in local fuel demand.