Why Government of India is not reducing petrol prices

In my previous article “Why Oil Prices are falling” I mentioned about the continued fall of crude oil prices globally. When I wrote the article, the price was 70 USD per barrel and now it has come down to around 50 USD.

Going by the reduction in the crude oil prices, the government should have reduced the price of petrol (As this article is an illustrative one, I am not taking the price of diesel for the purpose of this article) to around Rs.60. But the government is in no mood to reduce the prices for the last 2 months.

What may be the reasons?

Reason # 1: Increase in Excise Duty –

Due to reduction in the purchase price of crude oil, the oil marketing companies are making additional profits. So, in the decentralized pricing mechanism, the Government should have passed on this benefit to the consumers. Instead, the Government is pulling out the profits of oil companies in the form of ‘increase in Excise Duty’. For the last 2 months, Excise Duty is increased by Rs.5.75 per litre of petrol.

Reason # 2: Why is the Government increasing Excise Duty?

Like you and me, the Government is always short of funds! Its expenses are more than its income! But they have announced great plans for development. So how to get the money, Sirji? The global fall in oil prices has come as a pleasant surprise to them. Anyway, as such, our people are happy with the current price of petrol! Hence, instead of reducing the price, the government is augmenting the resources which can be used for road/infrastructure development. It is estimated that around Rs.30,000 Crores will be collected from additional Excise Duty.

Reason # 3:

There is no guarantee that the global prices will be holding on to this level in the near term. Maybe after 6 months, if the price goes north, the Government will have to increase the petrol prices. If that period coincides with state elections, the Government can’t afford to hike the prices! So, they may be keeping the buffer money in the form of Excise duty. When prices go up, instead of passing it on to the consumers, they may reduce Excise Duty.

Reason # 4:

Steep reduction in oil prices may reduce government tax revenue. The tax on Rs.67 is more than tax on Rs.55! Government earns over Rs.2 Lakh Crore of taxes per year from oil companies. If the rates are reduced the annual tax collection is fall. So, government wants to maximize its taxes.

Which means the prices of petrol won’t come down in the near future?

We can’t predict now. As such, the government can reduce (even after Excise Duty hike for 3 times) the prices of petrol by atleast Rs.2 per litre. So, the price reduction depends upon the Government policy. If the government wants to pass on the benefit of price correction from now on to the consumer, you can certainly fill more petrol for lesser money.

Thought for the day

There are two kinds of people in the world – Givers and Takers. The takers may eat better, but the givers sleep better.

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