crude-is-cheaper-but-petrol-isnt

Context: The price of Indian basket of crude more than halved but it hasn’t translated to prices of petrol per se.

More on the news

  • The price of the Indian basket of crude more than halved from $50.90 a barrel to $23.04 a barrel between March to May, 2020.
    • But the prices of petrol remained steady around ₹71.71 a litre in Delhi. 

Reason behind Petrol prices being steady

  • The base price of petrol in March was ₹32.61 a litre. 
    • It has since fallen to ₹17.96 a litre, reflecting the global fall in oil prices.
    • Between then and now, the central government has increased the excise duty on petrol by 65%, from ₹19.98 a litre to ₹32.98 a litre,primarily on account of the rise in special additional excise duty and additional excise duty (road and infrastructure cess). 
    • In addition to it, the Delhi government has increased the value-added tax (VAT) on petrol from 27% to 30%.

Significance of prices raised on petrol and diesel in the times of lockdown

  • The Centre’s collection of excise duty and goods and services tax (GST) fell drastically as production and consumption of goods and services dipped on account of the lockdown. 
    • State governments’ collection of taxes on petrol, diesel and alcohol, and stamp duty on real estate transactions also fell
    • The said situation has left the governments with little option but to increase taxes on fuel.

More states likely to follow the trend

  • The state governments of Haryana and Tamil Nadu have already increased VAT on petrol and diesel to augment their revenues.. 
    • Usually, raising taxes on petrol and diesel is one of the easiest ways for any government to increase tax collections.
  • However, given the abnormal times of lockdown as such, any increase in tax collections because of higher taxes will help the economy to open up.

Source: Mint