Confusion prevailed over a reported directive by the Centre to State-owned oil marketing companies (OMCs) not to increase retail petrol and diesel prices by absorbing a part of the losses due to the recent hike in global crude oil prices.
While shares of the OMCs plummeted sharply on the stock exchanges, the OMCs denied the reports, saying they have so far not received any such directive. In the absence of any clarification from the Government, the fuel price movement in the coming days will be keenly watched to understand the nature of the Government’s intervention in regulating the prices.
According to sources, Indian Oil Corp (IOC), Hindustan Petroleum Corp ltd (HPCl) and Bharat Petroleum Corp ltd (BPCl) among other oil retailers have reportedly been asked to absorb up to Rs 1 a litre hike.
“In deregulated market, the Government cannot openly notify OMCs to absorb oil prices in the vast market like India, that’s why there is no official word on it,” it added.
When asked about the development, IOC Chairman Sanjiv Singh said, “No, we haven’t heard from the Government anything on dropping daily price revision.” HPCl Chairman and Managing Director MK Surana too said that the company was not aware of any directive to oil companies not to pass on the rise in international oil prices.
Concerned with the continuous hike on oil prices, Prime Minister Narendra Modi on Wednesday said efforts to artificially distort prices are self-defeating, and a global consensus must be built for responsible pricing to provide affordable energy to all.
Addressing the 16th International Energy Forum (IEF) Ministerial meeting in the presence of Ministers from Organisation of the Petroleum Exporting Countries (OPEC), including Saudi Arabia, Iran and Qatar, Modi said, “The world for too long has seen oil prices on roller coaster. We need to more responsible prices which balances interest of both consumer and producer.”
The Government decision to pass on the burden to the OMCs is dictated by the realisation that any cut in excise duty could adversely reflect on the fiscal deficit.
The OMCs will now have to take a hit on the profits when they absorb under-recovery. This is the reason the shares of the OMC saw freefall on the exchanges.
HPCl declined as much as 5.55 per cent to Rs 344.65 while BPCl and IOC were down by
over 3 per cent in early morning trading on the Bombay Stock Exchange.
Prices of petrol and diesel are at their highest in four years even as Brent crude at $70 a barrel, despite the recent surge, though it is still lower than the peak level of $108 in 2014.
However, experts feel that with the struggling to balance its books, the Centre has already prolonged its fiscal consolidation roadmap where its fiscal deficit is gradually widening. “This is not good news for India which meets more than 80 per cent of its crude oil requirement through imports. A surge in the oil market could give it new headaches to the Government in the long run,” said a Mumbai based
oil expert who wished not to be named.
Over the years, India’s efforts to step up production and reduce dependence on imports have failed to make a difference. The Modi Government has envisaged bringing down India’s import dependence on oil imports by 10 per cent by 2022.
The Modi-led Government hiked excise duty on auto fuels by nine times in 2014-15 and 2015-16.
Excise duty on petrol and diesel was Rs 9.48 and Rs 3.56 a litre respectively before this Government took office.
However, through repeated hikes, it jacked up duty to Rs 21.48 and Rs 17.33 a litre, increase of 226 per cent and 486 per cent respectively over the May 2014 level.
In a move to shore up finances as global oil prices fell, Finance Minister Arun Jaitley had raised excise duty nine times between November 2014 and January 2016, and it also had cut tax Rs 2 a litre last October to defuse inflationary pressure. later in January, ahead of the presentation of the Union budget 2018-19, the Petroleum Ministry had sought a reduction in excise duty on petrol and diesel to cushion consumers from the impact of rising fuel prices in the global market.
However, struggling to balance his fiscal arithmetic, the Finance Minister ignored the call. After slashing excise duty last October, the Centre had asked States to also lower VAT, but only Maharashtra, Gujarat, Madhya Pradesh and Himachal Pradesh acted on its call.
Global oil prices crashed in June 2014. The Modi Government took advantage of the low oil prices to jack up excise duty on petrol and diesel and fills coffers, which in turn helped it contain the fiscal deficit. Excise duty on petrol and diesel went up by Rs 11.77 and Rs 13.47 a litre respectively.
As a result, the Government’s excise mop up more than doubled to Rs 242,000 crore in 2016-17 from Rs 99,000 crore in 2014-15. The price of Indian crude basket is currently less than $70 a barrel, but petrol is selling at over Rs 73 a litre at fuel stations. Not only the Centre, states too are taxing petrol and diesel heavily to fill their coffers. The Government could bring petrol and diesel within the ambit of Goods and Service Tax (GST) to prevent states from arbitrarily hiking sales tax on auto fuels.
In fact, Petroleum Minister Dharmendra Pradhan has pitched to bring petrol, diesel under GST. However, States continue to drag their feet on this issue. The Centre has failed to persuade States to let go of auto fuels despite the fact it is the BJP that is ruling in a majority of States.