The Centre has raised excise duties on petrol by Rs 2.25 per litre and on diesel by Rs 1 per litre — the second set of hikes in less than a month. It is true that consumers won’t face an actual price hike (the duty increase is offset by declining global prices) and the government faces the onerous task of containing the fiscal deficit at 4.1 per cent of the GDP. Yet, by helping itself to the consumer surplus created by falling crude oil prices, the Centre has violated the spirit of price deregulation. When it let go of diesel price-setting, the government had agreed that while the consumer would have to suffer and fend for herself in times of price upswings, she would benefit in times of moderation. But even though the Indian basket of crude oil is 17.6 per cent cheaper today than on October 19 (when diesel was decontrolled), diesel prices have only gone down by 10.95 per cent. Over roughly the same period, petrol prices have gone down by only 4.98 per cent. If consumers don’t benefit in the good times, the government may find it difficult to resist pressure to subsidise them — the mirror image of taxation — in the bad times.
By skimming some of the consumer’s cream, the government hopes to raise an additional Rs 10,000 crore in tax revenue from the two sets of duty hikes — much needed, given that indirect tax collections have grown much slower than expected (the shortfall is pegged at approximately Rs 90,000 crore) and the fiscal deficit is already at 90 per cent of the full-year target. But the Centre only has itself to blame for not seizing the moment and taking advantage of the bull market to offload some of its stake in public companies. Indeed, in September, the cabinet had even cleared the way for stake sales in Coal India, ONGC and National Hydroelectric Power Corporation. Fuel consumers shouldn’t have to pay for the government’s lack of initiative or follow up.
Perhaps consumers wouldn’t feel cheated had the government levied a cess that directed the money for a specific purpose — a national highway fund, for instance. Indeed, in a fuel-starved nation, it certainly makes sense to disincentivise wasteful consumption through fiscal instruments, which could then be used to further green objectives. But the government’s appropriation of consumer surplus will go into the Consolidated Fund of India — used to pay salaries and the like. Prudence, it would appear, has been sacrificed for short-term gain.