Fuelling India's Crisis

THE NARENDRA MODI government increased excise duty on petrol and diesel nine times in 2016 and 2017 when crude oil prices were $40 a barrel.

- Minhaz Merchant

The expectation was that excise duty would be reduced when crude prices rose. That expectation was belied till public pressure and looming state elections compelled the government to cut petrol and diesel prices by Rs 2.50 per litre. Several states have cut prices by an additional Rs 2.50.

Union Finance Minister Arun Jaitley said the cuts will be shared between the central government (Rs 1.50) and oil companies (Rs 1.00). The revenue loss to the central exchequer is estimated at Rs 10,500 crore. It will not, Jaitley claimed, affect the 2018-19 fiscal deficit target though the revenue deficit could be impacted.

High fuel prices are a symptom. The toxic cause underlying them is India’s failure over the past two decades to cut crude oil imports. India today imports over 81 per cent of its crude oil requirement. During the 1980s, ONGC’s gushing oil fields at Bombay High kept crude oil imports down to 65 per cent. Since then, as output from Bombay High fell, imports have crept up to unsustainable levels.

The impact has spread like a virus across sectors. The aviation industry is reeling under the rising cost of aviation turbine fuel (ATF). To add insult to injury, government-owned oil companies recently increased the tax on ATF by 7.3 per cent. Jet Airways and Air India are in serious financial trouble. SpiceJet, profitable till a quarter ago, is slipping into the red. Even bare-bones, low-cost Indigo Airlines is feeling the pain with profits plunging.