The government on Monday ruled out reverting to the system of subsidising auto fuel but said it may resort to cut in excise duties if rate hike “pinches hard” even as there has been Rs 5.21 per litre hike in petrol price and Rs 4.45 in diesel rates since December.
“There will be no subsidy regime in petrol and diesel,” Oil Minister Dharmendra Pradhan said. “Petrol price was deregulated in June 2010 and diesel in October 2014 and the same will continue.” The surge in international oil prices has led to petrol prices being hiked for the fourth time since December and thrice in case of diesel. Petrol price was hiked by 42 paisa and diesel by Rs 1.03 a litre (excluding local levies), effective last midnight. Petrol in Delhi now costs Rs 71.14 a litre as against Rs 65.93 in end November. Similarly, diesel rates have gone up from Rs 54.57 a litre to Rs 59.02.
“There will be no going back to subsidisation. Subsidies are anti-poor. Subsidy should be given only to needy persons and not to people who can afford,” he said, indicating that auto fuels are being mostly consumed by people who can afford them.
Asked if the government will look at cutting excise duty, he said no developed country had passed on the entire slump in global oil prices that began in second half of 2014 to take crude to more than a decade low, to consumers. Even oil producing nations like Saudi Arabia and UAE used it as an opportunity to cut subsidies, he said, adding that India raised excise duty to take away part of the gain arising from slump in global oil prices then. “We passed on 50 per cent of the benefit of oil prices slump to consumers and the rest 50 per cent we recouped by way of raising excise duty. This additional revenue was used to fund infrastructure and social projects,” he said.
When oil prices slumped in the second half of 2014 and early 2015, the government hiked excise duty on petrol and diesel nine times to mop up additional revenues that helped it meet its revenue and fiscal deficit targets. In all, it raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47. But global oil prices have been moving up since oil cartel OPEC last month agreed to cut output for the first time in eight years.
India, which depends on imports to meet 80 per cent of its oil needs, will have to spend Rs 9,126 crore (US$ 1.36 billion) more every year for one dollar per barrel increase in crude oil. Besides, the rising crude oil trajectory impacts inflation and growth. India spent US$ 63.96 billion on crude oil import in 2015-16, about half of US$ 112.7 billion outgo in the previous fiscal and US$ 143 billion in 2013-14. For the current fiscal, the import bill has been pegged at US$ 66 billion at an average import price of US$ 48 per barrel.
International oil prices currently are trading above US$ 52 per barrel. Every rupee per litre increase in petrol price leads to 0.02 per cent rise in WPI inflation and 0.07 per cent for the same amount of increase in diesel rates.