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Cut excise duty, bring automobile fuels under GST, chambers urge government

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With transport fuel prices in Delhi touching an all-time high, industry chambers, Ficci and Assocham, on Monday called for the government to urgently reduce fuel excise duties. It also urged the government to bring automobile fuels under the purview of Goods and Services Tax (GST).

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The price of petrol per litre in Delhi on Monday under the dynamic pricing regime touched a record high of Rs 76.57, already having beaten on Sunday the previous high of Rs 76.06 in the city on September 14, 2013.

Diesel in the national capital on Monday went to its highest level of Rs 67.57 per litre.

Reacting to the spiralling fuel price Oil Minister Dharmendra Pradhan on Sunday said the government is “sensitive towards the rising fuel prices” and various alternatives are being explored. “I hope something will work out soon,” he added.

“At a time when the Indian economy is on a recovery path, rising oil prices are again posing a high risk to India’s economic growth trajectory,” a Ficci statement said here.

“Over the last few years, falling oil prices contributed significantly towards improving the health of the economy. With global oil prices once again spiralling upwards, the macroeconomic risks of higher inflation, higher trade deficit and pressure on balance of payments with attended consequences for the Rupee value have once again surfaced,” said Ficci President Rashesh Shah.

“There is also a risk that monetary policy may turn hawkish, which would, in turn, have a bearing on the growth of private investments,” he said.

“While cut in excise duty on petrol and diesel may provide temporary relief to the consumers, the sustainable solution lies in the automobile fuel coming under the Goods and Services Tax, which can happen only after the Centre and states together reduce their dependence on the fuel considerably,” said D S Rawat, Secretary General of Assocham.

He said , rising crude prices coupled with weaker rupee with cascading impact on inflation pose “a big challenge for the Indian macro picture and ironically, there is a little that can be done in the short term.”

In the long run, India needs to rework its energy security and ensure that petrol and diesel do not remain a huge revenue resource. Rather than being a revenue source for the government, the auto fuel should drive the economic growth, Rawat added.

At its first bi-monthly monetary policy review of the fiscal in April, the Reserve Bank of India (RBI) retained its key interest rate at 6 per cent for the fourth time in succession, citing rising oil prices as a major upside risk to retail inflation that rules over the RBI’s median target of 4 per cent.

“Unless swift action is taken to address the situation, the economic growth will again head towards a speed-breaker. Amongst the most immediate actions that can be taken by the government is to bring down the excise duty on fuel,” Shah added.

He pointed out that the government’s latest Economic Survey 2017-18 has estimated that for every $10 per barrel rise in crude prices, while GDP growth will reduce by 0.2-0.3 percentage points, the current account deficit will increase by 0.4 percentage points and wholesale inflation will go up by 1.7 percentage points.

Ficci also noted that when the global oil prices were down, the government had hiked excise duty on fuel nine times between November 2014 and January 2016, but had reduced it only once in October 2017.

“Given that overall excise duties have been raised by as much as Rs 11.77 per litre for petrol and Rs 13.47 per litre for diesel, while reduction has been mere Rs 2 per litre, there is a scope of bringing down the excise duties. While such a move will have an implication on the fiscal revenues at this juncture there is a need to do the fine balancing act,” Shah said.

“As per some estimates, every Re 1 per litre cut in excise duties results in potential revenue losses of Rs 130 billion (0.1 per cent of GDP). On the positive side, GST collections are edging up and if the government focuses on increasing disinvestment proceeds, revenue losses from excise can be mitigated,” he said.

“Going forward, the government should also work with the states to bring petrol products under the GST regime,” he added.

Over the long term, there is a need for a strategic policy towards reducing India’s reliance on oil, entering into strategic partnerships with global oil suppliers “and evaluate forming a global consumer alliance along with other leading consumers of oil like China”, Ficci said.

The price of the Indian basket of crude oils, composed of 70 per cent sour grade Oman and Dubai crudes and the rest by sweet grade Brent, has gone upwards of $72 a barrel in May, after rising to an average of $69.30 in April 2018.

It averaged $47.56 and $56.43 per barrel respectively during the last two financial years.

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