A man refuels a vehicle at a petrol pump, New Delhi. (Prashanth Vishwanathan/Bloomberg)

Centre Mulling Long-Term Solution To Soaring Fuel Prices, Says Ravi Shankar Prasad

With petrol and diesel prices being hiked for the tenth day in a row, the government today said it is working on a long-term solution to address the volatility and frequent revisions in rates.

The Bharatiya Janata Party-led government had in June last year junked a 15-year old practice of revising rates every fortnight and introduced daily revisions which worked well except periods immediately preceding an election.

There was a 19-day freeze in revising rates before Karnataka went to polls, and since the time the hiatus ended on May 14, rates have gone up by Rs 2.54 a litre in case of petrol and Rs 2.41 in diesel.

The 10-day relentless price increases built pressure on the government for cutting excise duty to give immediate relief to consumers but after a meeting of the Union Cabinet headed by Prime Minister Narendra Modi, Law and Information Technology Minister Ravi Shankar Prasad offered little insight if a reduction in tax was coming.

[The] issue of frequent hike in fuel price is a matter of debate and concern. The government is involved in this whole process, including the concern [about rise in prices] and also the uncertainty.
Ravi Shankar Prasad, Law and IT Minister

With the geopolitical situation leading to an uncertainty over the direction of international oil prices, “a new sense of urgency has developed”, he said.

“The government is keen that instead of having an ad hoc measure, it may be desirable to have a long-term view which addresses not only the volatility but also takes care of the unnecessary ambiguity arising out of frequent ups and downs. That process is underway,” he added.

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The minister refused to elaborate either on the measures being considered or if a duty reduction was on cards.

On the question of excise duty, he said proceeds from such taxes are used for country's development including building of highways, digital infrastructure, electricity to villages, hospitals and education. “So tax on fuel is linked with developmental issues.”

 A man walks past petrol tankers, outside an oil depot in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)
A man walks past petrol tankers, outside an oil depot in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Asked about former Finance Minister P Chidambaram's criticism of the BJP government raising excise duty to take away gains arising from falling international prices, Prasad said he generally does not comment on the Congress leader’s tweets “because ever since his party went out of power, he has become active on Twitter”.

Chidambaram had in a series of tweets said that the fall in international oil prices between 2014 and early 2016 helped the government save Rs 15 per litre but the government put an additional Rs 10 on every litre of fuel.

The government had raised excise duty nine times between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

Since May 14 when the state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have been revised everyday, leading them to record highs. Petrol costs Rs 76.17 per litre in Delhi while diesel sells for Rs 68.34.

Also read: Oil Conspires With Politics to Drive Rupee Toward Record Low

State-owned Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) were in April 2002 allowed to revise rates of petrol and diesel on 1st and 16th of every month based on average rate of benchmark international petroleum product prices and rupee-U.S. dollar rates in the preceding fortnight.

The revisions continued till just before the general elections in 2004 when oil companies went slow and after a Congress-led UPA came to power the entire process was reviewed as the international oil prices started moving up. Rates were revised on fortnightly basis but not all of the desired hike was passed on to the consumers and that increase not passed on converted into subsidy.

The UPA government finally freed petrol price in June 2010 and the diesel rates were decontrolled by the current BJP government in November 2014.

Prasad said the government had allowed complete freedom on pricing and on many occasions prices went down considerably.

The central government levies Rs 19.48 excise duty on a litre of petrol and Rs 15.33 on diesel. State sales tax or VAT varies from state to state. Unlike excise duty, VAT is ad valorem and results in higher revenues for the state when rates move up.