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An act of legalised plunder: Government increasing cess on petrol and diesel

The rise in the excise duty is the reason Indians are paying the highest prices compared to the neighbouring countries such as Pakistan, Nepal, which interestingly buy fuel from India itself.

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Indians pay the highest tax on petrol, diesel in the world because of the massive increase in excise duty. The Government is expected to gain Rs 1.6 lakh in its revenue from these excise duty hikes. With the rise in value-added tax and the excise duty general public is bound to get affected severely.

The rise in the excise duty is the reason we are paying the highest prices compared to the neighbouring countries such as Pakistan, Nepal, which interestingly buy fuel from India itself.
The rise in excise duty on fuel is unlikely to offer any relief to the stressed public. On September 30, Controller General of Accounts (CGA) declared the revenue and the expense of Central Government between April 1 and August 31 illustrating the highest tax on petrol and diesel. As the economy contracted this year, it was surprising that tax collection by excise duties have increased by almost a third.

Source: Centre for Monitoring Indian Economy.

As it is visible from the chart, the collection of all the taxes have come down, leaving only one tax, i.e. excise duty, which has grown during this course of the year. And that growth is a massive 32.05% to Rs 1 lakh crore. The only reason for this growth is the increase in the excise duty by the Central Government, which was done twice in 2020. First was in March followed by May. The retail selling price of petrol in March was Rs 71.71 per litre, increasing to Rs 81.06 per litre in October. It is 13% higher than that of March.

If you go by the data from the Oil Ministry, then the combined tax contribution of the petrol sector was Rs 3.48 lakh crore and Rs 2.27 lakh crore. The combined revenue will help the economy which shattered due to shutting down of businesses.

On May 2020 the Government of India hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 per litre to acquire gain arising from international oil prices falling to a two-decade low. It was the second hike in the excise duty. The Government said that these steps had been taken to raise some revenue in the dipping economy. According to the Government, this will help generate the resources so that it can meet the expense of coronavirus fight as well as other expenditures.

Source: Petroleum Planning and Analysis Cell

To understand the whole paradigm, here is an example.
Suppose in Delhi dealers pay Rs 18.28 per litre for petrol including the base price. After including VAT excise and dealer commission, the retail price goes up to Rs 71.264 for a litre. On petrol that due levied is Rs 32.98 that is collected by the state government. It is different for different states. The states which levy the highest are Madhya Pradesh, Kerala, Rajasthan. The dealer commission is also subjective with the location of the fuel station.

But here the question arises why Government is taxing already stressed public living in adversities. The answer is simple; the Government finds it easier to collect revenue instead of actually investing in the economy. One prominent reason circulated on social media is that the Government shares the increase in excise duty with the state government, which is false. Since the increased excise duty is a cess Centre need not share it with the state governments; hence the profits stay with the central Government only.

It allows them to go slow on infusing or boosting the economy. By increasing duty tax, GOI can get away with framing policies and implementing schemes which can actually raise the economy.
What India currently requires is a booster dose of demand-side economics—a set of policies to deal with hurdles and better infrastructure investment by the Government. The Government’s inability to deliver and execute economic reforms, job creation have taken a toll on the common public. Agree or not country collectively is faced with an insensitive government. India’s economy experienced the worst contraction in the current financial year mainly due to the Government’s inability to aid the economy. The economic growth derailed several quarters ago—much before the pandemic. Economy slid to 24 per cent in the April-June quarter, making the worst in many years. The unstable democratic institution and ill-executed policies and compromise underpin the reasons of fiscal vulnerability.

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