Govt should pass on some benefit of crude price fall to consumers

<em>Mahua Venkatesh</em>

It is very clear that the Narendra Modi government is not keen on passing the benefit of reduced global oil prices to the end customers—by reducing domestic fuel prices. On Saturday, excise duty on petrol and diesel was raised by a steep Rs 3 a litre. The quantum was the steepest since 2012 and will shore up the government’s revenue by about Rs 40,000 crore for the full year amid a tight fiscal situation. However, the gains in the about-to-be-closing financial year could be around Rs 1,500 to 1,800 crore.

At present global oil prices are hovering around $32 a barrel—a drastic and sharp drop from the level of about $51 a barrel in the first week of March. On March 9, prices dropped by over 31 per cent—the highest intra-day fall since the Gulf war.

According to a State Bank of India report, the nearly 30 per cent fall in crude oil prices could lower the petrol prices in the country by Rs 12 a litre and diesel prices by Rs 10 per litre.

Besides, the hike in excise duty will have inflationary pressures, though the retail prices of prices and diesel will not be impacted immediately as the state-owned oil companies have already adjusted them against the drop in oil prices.

Such moves—of not reducing prices—leave the citizens agitated, especially with the government underlining how fuel prices will be market linked and that the public will benefit as and when global prices dip.

Sample this. When global crude prices were about $65-66 a barrel in December 2019, the retail price of petrol in the capital hovered around Rs 75 a litre. Today when global prices are about $32 a barrel, petrol price in Delhi is around Rs 70 per litre.

This is not the first time. In 2014-15 too, when global oil prices have fallen, the benefits were not passed on to the public. The opposition Congress has already slammed the government for hiking excise duties and not passing on the benefit of lower crude prices to the consumers.

Global prices fell to unusually low levels in the last one week as panic coupled with economic and health uncertainties hit the world with the outbreak of the deadly coronavirus. Demand for oil has shrunk. Earlier, the largest importer of oil, China was in lockdown. But now several other countries, including the US, have imposed travel restrictions and asked citizens to stay indoors.

Had the government decided to pass a part of the benefit of this huge drop in global crude prices to consumers, it would have left them with a larger chunk of disposable incomes. Not just that. It would have boosted the sagging sentiments. The government would help the economy as well itself to pass on some of the benefits to the consumers..