Here’s why the Indian government’s intervention to stop rising fuel prices may only be a temporary relief
Fuel pricescut by ₹2.50 ($.034) a litre in several states across India.
- Govt cuts taxes on diesel and petrol by ₹1.50 per litre and asks state-run oil marketing companies to cut prices by ₹1 per litre.
- Global oil prices still a major factor on how petrol and diesel are ultimately priced.
It has done so by slightly cutting the excise duty, a type of indirect tax, on imported diesel and petrol by ₹1.50 per litre and directing several state-run oil marketing companies to cut prices by a further ₹1 per litre on the sale of petrol and diesel. Government taxes are estimated to account for nearly 40% of retail prices of petrol and diesel.
As of Thursday, petrol prices in Delhi had climbed to ₹84 per litre and ₹91.34 in Mumbai; diesel was being sold at ₹75.45 and ₹80 in Mumbai. Overall, fuel prices had increased by at least 10% in the last month alone.
Uncertain global oil prices and fiscal situation
While the recent tax cut by the government resulting in the lower fuel price is great news for consumers, global oil prices are still a big determinant on how petrol and diesel are ultimately priced in India. Global fuel prices, however, have been on the rise with the international benchmark
India currently mainly relies on oil imports, which make up about 80% of its current oil consumption. The price of crude oil, which makes up almost 90% of oil imports, is a major factor behind the final price of petrol and diesel in the country.
While it may seem the Indian government certainly has room for slashing taxes further on fuels, the recent cut is estimated to cost the government ₹2.7 trillion. According to analysts that amount will exert marginal pressure on the country’s fiscal deficit, which is being closely watched by international ratings agencies and the country’s capital markets. Any further revenue loss, however, could widen the fiscal deficit.
Meanwhile India’s finance minister Arun