Business India World

Dark Truth: Indian government’s dependence on petrol and diesel for revenue

Fuel plays a vital role when it comes to the economy. Industrial functionality relies on the consumption of enormous amounts of energy which caters to generation of economic wealth. Many countries have economies that are based on petroleum as it is a daily use product that covers multiple sectors such as transportation, plastics and agriculture.

In the present day and age considering negative environmental impacts of fossil fuels, nations across the world have been shifting their reliance and dependence to greener forms of energy.

Many countries are still highly dependent on petrol and diesel prices to run the economy on a very large extent. One such is India. Currently fuel prices are seeing an all time high as demand over the world has surged.

India is the world’s third largest oil importer in the entire world and second biggest in Asia after China. The nation imports over 80% of its crude. Saudi Arabia and Opec+ are India’s biggest oil suppliers, they account for at least 86% of Indians total oil imports.

In 2019 India’s oil import bill stood at $101.4 billion which rose to $111.9 billion in the pandemic year even though lockdowns and restrictions were imposed to curb spread of the novel coronavirus infection.

In 2021, total crude imports by India fell to 3.97 million barrels per day in the month of March, this was down by over 11.5% compared to the pandemic year. Largely due to the fall in demand as prices went up and restrictions imposed

When the pandemic struck the Indian government raised excise duties to boost their revenue, however this did not hit individuals and households as much before compared to now, largely due to lockdowns and fall in global crude prices. But even after all these events prices have not slump or remained stable, they have risen to record highs in the country.

Even though the sales during the pandemic year were low, the government’s tax collection via petrol and diesel skyrocketed by nearly 88% all due to the rise in excise duties. Revenue from petrol went above INR ₹3 lakh crore and earning from diesel more than doubled. Earning stood at INR ₹1.1 lakh crore in 2019 and by 2020 touched INR ₹2.3 lakh. Total excise collection via natural gas, jet fuel and cess on domestic crude rose by 74% reaching INR ₹3.4 lakh crore.

Right now petrol prices have crossed INR ₹100 per litre and diesel over INR ₹90 per litre in most of the states within the country. The primary cause is high taxes levied and not costlier crude that is due to rise in import costs.

To give you a clue just how high and expensive tax levels are New Delhi which is the capital of the country presently levies taxes that account for at least 50% of diesel prices and for petrol about 55% and ironically this union territory is known for taxing fuels very moderately when compared to the rest of the country.

In defence the government says they have been spending a lot of money towards vaccination, welfare and social schemes to aid people during the pandemic because of which prices cannot be brought down as they are contributing a huge proportion towards government’s revenue to aid relief measures.

Rise in fuel prices are forcing several consumers to shift to alternative sources. It is causing a rapid running inflation in the country as it serves as a major input component to several products.

“Previous governments reduced tax rates. Alternatively, oil marketing companies provide certain subsidies by reducing their profit market. But in the current situation nobody is doing that. As crude oil prices increase, fuel prices also increase. So today everybody is profitable except the consumer,” Madan Sabnavis, Chief Economist at CARE Ratings Ltd said.