With pump prices hitting record levels ahead of crucial state polls, oil minister Hardeep Singh Puri has been holding a series of dialogues with counterparts from leading producing countries.
But unlike the muscular approach of his predecessor Dharmendra Pradhan, the former diplomat is taking a nuanced approach to drive home the need for market stability and a “balanced” pricing that is “fair” to both producers and consumers.
“The government wants fuels to become cheaper. But today, India meets 85% of its oil requirement through imports. With such high import dependence, there is little one can do to bring down pump prices. Then there is the burden of oil bonds left by the UPA government,” the policymaker said, requesting anonymity.
As benchmark Brent crude has topped $85/barrel, petrol and diesel prices have crossed Rs 100 a litre, largely due to high Central excise and VAT bumping up the impact.
LPG refills, or household cooking gas cylinders, are hovering above Rs 900 as well, squeezing household budgets since subsidy was scrapped last year.
But the policymaker argued that excise was charged at a fixed rate, while VAT is levied as percentage, which amplifies any increase in the base.
“Excise duty was raised when oil crashed to $19/barrel last year. It is this tax that is funding free vaccination, foodgrain and cooking gas provided to the poor through the lockdown months and free LPG connections to the marginalised under the Ujjwala scheme,” he said.
“Now when we talk of reducing taxes, bring fuels under the GST regime, no state is stepping up. The proposal to bring petrol and diesel under the GST regime did not elicit positive response at the recent GST Council meeting and was deferred. So where will the Centre get money for the welfare schemes or measures against Covid and pay for the oil bonds?”
On LPG subsidy, he said utilities and services must be paid for. “Any subsidy is meant for a targeted category of consumers. So in LPG also they will continue to get it, say, for example the Ujjwala category. But as a sound economic principle, there is no going back to the subsidy regime,” he said.