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Fuel price cut timed to woo voters before elections in Punjab, UP?

The price cut was announced after six consecutive increases for petrol prices in the last three months and three in the case of diesel.

Written by Kanishka Singh | New Delhi | Updated: November 17, 2016 5:28 am
petrol price, fuel price, fuel price cut, petrol price cut, Punjab elections, Punjab polls, Punjab assembly elections 2017, UP, Uttar Pradesh elections, UP polls, diesel prices, punjab government, india news, indian express news The government has tried to compensate its target of plugging the gap in achieving the targeted fiscal deficit of 4.1 per cent of Gross Domestic Product. (Photo for representational purpose)

The government cut petrol and diesel prices from Wednesday after multiple increases in the past six months. The petrol price was cut by Rs 1.46 a litre and diesel price was cut by Rs 1.53 per litre. After a sharp hike in petrol and diesel prices on August 31, incremental hikes have been announced regularly. The move to finally cut prices appears to be the start of a gradual price drop process to woo voters just ahead of the state elections.

The price cut was announced after six consecutive increases for petrol prices in the last three months and three in the case of diesel. Petrol will now sell for Rs 66.16 a litre in the capital while diesel will cost Rs 54.88 a litre. The earlier hikes came despite the global prices showing a downward trend from November 2014, when it was at $106 a barrel. Now, it is down to $43 a barrel. Ironically, the prices of petrol and diesel are about the same as they were back two years ago. During the time, the government had eased the taxes and levies imposed on petroleum products to ease the burden on consumers. However, after a massive drop of 77 per cent in global oil prices, the benefits of price drop were not seen to be transferred to citizens like in many other countries.

When you buy a litre of petrol or diesel from the petrol pump you end up paying massive amounts of taxes on the fuel. In the capital, 57 per cent of the price paid for petrol at a dealer outlet is Excise tax and VAT. Similarly, 55 per cent of the price of diesel is Excise tax and VAT.

The government has tried to compensate its target of plugging the gap in achieving the targeted fiscal deficit of 4.1 per cent of Gross Domestic Product. The rises in duties have increased the government’s revenue by thousands of crores with the three increases in January alone increasing the revenue by an additional 17,000 crore. The oil price in January this year had dropped to a 12 year low of $26 a barrel but the prices didn’t go down then as well.

The hike and drop process seems to be cleverly timed keeping in mind the election schedule and to offer some relief from the demonetisation woes. The government needs to give a good report card in the budget on February 1, 2017 and then perform well in the state elections in Punjab and Uttar Pradesh. So managing oil prices is crucial.

The petroleum products are essentially price inelastic. Therefore governments use it as a primary revenue generator. Excise tax has been increased five times this year. The Indian government earns massive revenue from the taxes and duties imposed on fuels and was understandably unwilling to cut down on the prices even though oil prices globally were dropping massively.

The government argues that price rise keeps consumption low and in an import-heavy economy like India, reduces the negative balance of trade. However, with the massive amount of money that the government and oil companies are minting, along with the absence of any subsidies on petrol and more importantly diesel, it controls the fuel politics for election seasons.

Commodity prices in international markets have remained largely stable over the last fiscal. Oil prices have been low, but fuel for the consumer hasn’t become cheap. The UPA proposed the deregulation of fuels like diesel and NDA implemented it when it came to power. The government knows that decrease in fuel prices not only will increase customer sentiment but will also boost purchasing power and boost revenue for different sectors. Diesel price cuts and revenue boost will mean cut in inflation rates and easing of RBI’s monetary policy. The government stands to take a lot of brownie points in the coming days.

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More From Kanishka Singh
  1. B
    Brij Kishore
    Nov 17, 2016 at 4:46 am
    Why should indian express publish this trash when the elevtions in up and punjab are so far away and fuel prices will be revised several times before elections are announced. Is it just to propogate lies against the modi government.
    1. K
      Kadiyala Subrahmanyam
      Nov 16, 2016 at 1:39 pm
      Crude price has cooled off by 25% in the last 1 month giving room to price cuts.lt;br/gt;lt;br/gt;Author of this article should get his facts right first..... moreover, elections are almost 5 months away....
      1. g
        Nov 16, 2016 at 3:32 pm
        No. It was done keeping 2019 parliament election.
        1. J
          Nov 16, 2016 at 10:48 pm
          arrey bah who is the dumb kaniska singh? on payroll of pappu...sirji let me educate you...the OPEC has increased the production because of which the oil prices are down all over world including USA and India...as already posted here, its is linked to market...by the way i heard today that OPEC may agree to cut down the production in near future and that may jack up the oil price which could be around Jan timeframe..so hold your pant tight...as for IE, shame on you for entertaining such immature and political motivated report...third grade news paper..
          1. M
            madan gupta
            Nov 16, 2016 at 8:11 pm
            both states will have hung embly. bjp may lick the feet of mayawati and make her cm. in punjab, badals will loose and go to gail, modi will be compelled to fire harsimrat kaur.
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