Petrol, Diesel Prices: Yes, Arun Jaitley Has Kept Oil Taxes High, But He Did This To Stimulate GDP

Petrol, Diesel Prices: Yes, Arun Jaitley Has Kept Oil Taxes High, But He Did This To Stimulate GDP

That the Opposition should portray the government as a tax-grabbing one, preventing consumers from benefitting from the collapse in global crude oil prices – from $105 per barrel in FY14 to around $50 today – is par for the course.

Between central government excise duties and state VATs, taxes in Delhi comprise around 52% of the retail price of petrol and around 44% in the case of diesel. VAT rates, in fact, vary dramatically across states, from 27% in Delhi to as much as 48% in Maharashtra. As a result, petrol in neighbouring Pakistan is cheaper by Rs 28 per litre and by Rs 20 in Sri Lanka. As the 2016-17 Economic Survey points out, the Centre has pushed up the excise duty on petrol by almost 150% since July 2014. As a result, central revenues from the sector rose a whopping Rs 86,377 crore in FY15 and Rs 76,091 crore in FY16 – the bulk of this was from taxes. While states didn’t see much of an increase in VAT rates in FY16, they realized the potential and raised revenues by Rs 29,561 crore in FY17.

At a time when most growth-drivers of the economy – consumption, investments and exports – are either slowing or contracting, it was critical the government step up spending in a big way. At the same time, keep control on the fiscal deficit was important, else the signal to bond markets would raise interest costs and negate a part of the increased government-capex. It is the higher taxes on petroleum that everyone seems to be up in arms against that helped the government – both the centre and the states – sharply step up both capex and other expenditure while keeping the fiscal deficit under control. Between FY15 and FY17, total petroleum sector revenues for both the centre and the states rose from 2.7% of GDP to 3.5%. As a result, the contribution of government expenditure to GDP growth has shot up; in terms of the multiplier impact of roads and railway construction, for example, it is far greater. Read more

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