By Elton Gomes
Finance Minister Arun Jaitley on Thursday announced a cut of Rs 2.5 in the per litre price of diesel and petrol. In announcing the price cut Jaitley also asked state governments to announce a matching reduction. The minister announced that the Centre would reduce the tax rate by Rs 1.5 per litre, while oil marketing companies would absorb another one rupee.
On Thursday, petrol prices had risen by 15 paise a litre and diesel by 20 paise, thus pushing retail prices in Delhi to an all-time high of Rs 84 per litre and diesel to Rs 75.45.
Jaitley said the government introduced a cut in fuel price in the interest of consumers. This is perfectly good economics… we want consumers to spend money on other items also… and to do it without impacting the fiscal deficit is still good economics, Jaitley announced after several inter-ministerial discussions with the petroleum ministry. He added, If reducing oil prices is good politics, so be it, Hindustan Times reported.
In announcing the cut on fuel prices, Jaitley urged states to match the centre’s effort by reducing value-added tax (VAT) by Rs. 2.50 so that citizens could enjoy a total benefit of at least Rs 5.
Which states have reduced fuel prices?
Following Jaitleys announcement, BJP-ruled states also announced additional cuts. Eleven of the 19 states, where the party is in power, announced matching cuts hours after the Finance Minister made his announcement.
This meant that petrol and diesel would be five rupees cheaper per litre in various BJP-ruled states as they matched the Centres cut and reduced Rs 2.5 on fuel.
Maharashtra and Gujarat became the first two states to announce that they will be reducing prices by Rs 2.5 per litre. Thereafter, Jharkhand, Tripura, Madhya Pradesh, Uttar Pradesh, Rajasthan, Chhattisgarh, Himachal Pradesh, Haryana, Goa, Arunachal Pradesh, and Assam also made the announcement.
Maharashtra Chief Minister Devendra Fadnavis, who announced the reduction in fuel prices on Twitter, said, This would give huge relief to common citizens. The net effect to the people in Maharashtra will be a reduced price of Rs 5 per litre (on petrol prices), the Indian Express reported.
Why did the government call for a fuel price cut?
Citing reasons such as potential US sanctions on Iran, which have led to a rise in prices of crude oil, Jaitley said, We have taken this step because international oil prices are very uncertain. It is not at all sure what will happen in Iran,” News18 reported.
Jaitley highlighted that the central government will not go back on deregulation of fuel prices. “We have to react to the situation and give relief without impacting fiscal deficit. We cannot do it at the cost of fiscal position and give it when it can absorb it,” he said.
Congress accuses the government of Rs 13 trillion fuel loot
The Congress described the fuel price reduction as “meagre”. Congress chief spokesperson Randeep Surjewala said that the Narendra Modi government cut prices as it panicked at the prospect of losing the assembly polls.
Surjewala accused the Modi government of a Rs 13 trillion fuel loot by imposing heavy excise duty on petrol and diesel in the past four years. The Congress demanded that fuel prices should be brought to the 2014 level and that petrol and diesel should be included under the GST (Goods and Services tax).
Congress spokesperson Pawan Khera said that the mirage of Achhe Din has been completely shattered. Khera said that non-Subsidised LPG cooking gas cylinder prices have increased by Rs 465 since the Modi government came to power, and this could have a spiralling effect on the prices of other products.
This will result in increase in cost to generate electricity, thereby impacting our electricity bills. Couple all this with the ever increasing prices of petrol and diesel, and the decimation of the budgets of the common people is complete, Khera told the press.
Elections prompt fuel price cut
The Central government held several discussions on reducing excise duty on petrol and diesel during the last two months. Media reports suggest that the decision to implement a reduction has been taken in view of the year-end assembly elections. The government also realized that it was unlikely that global crude prices would fall in the near future.
The decision to cut fuel prices comes before the Election Commission officially announces the poll schedule for Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana, and Mizoram. Once the polls have been announced, the model code of conduct sets in. The government would then have to seek the Election Commissions permission before implementing such a measure.
Elton Gomes is a staff writer at Qrius