The Ministry of Finance has declared a radical change in the organization of fuel taxation in the country. The Centre has given its first signals by reducing domestic excise duty on petrol and diesel by 10 per litre and at the same time subjecting the new tax to high export taxes to mean that it is focusing on the Indian consumer and that the tanks of India are not going empty even as the world observes the Middle East closely.
A Shield against Global Volatility: the Great Duty Cut
The major point in the announcement of the government is the significant decrease in the central excise duty. This is a huge relief valve to a nation where fuel prices serve as a measure of the cost of living- how much a liter of milk costs, how expensive a commuting cost is, etc.
The Numbers behind the Relief
The decrease will reduce the tax load to the lowest level in the history of the present decade:
- Petrol: Duty has been reduced by 13 to only 3 per litre.
- Diesel: Another bold step that has been taken is the decrease of the duty to zero.
Though these figures mean a huge blow to the revenue of the exchequer, one cannot rule out the human factor. According to the Petroleum Minister Hardeep Singh Puri, the Modi government had two options, one was to drastically raise prices, or to take up the burden on its own budget. The government, in taking the latter option, is playing a role of a shock absorber to the people of India.
Why Now? The West Asia Crisis and the Strait of Hormuz
In order to comprehend the urgency of this decision, it is necessary to refer to the stormy waters of the Middle East. The continued war against the U.S. and Israel as well as Iran has caused a ripple effect on the worldwide energy industry. Through the Strait of Hormuz, which is a narrow yet crucial artery through which almost 20-25% of the oil and gas moves in the world, major disruptions have been experienced.
Historically, India has been importing about 12-15 percent of its own crude oil using this particular route prior to the present crisis. With the situation intensifying, the international crude prices shot up to more than 122 per barrels within only one month where they had been at 70 per barrel. This kind of spike is an economic crisis to a nation that imports more than 85 percent of its oil needs.
Read also: No Fuel Crisis: Bharat Petroleum and Hindustan Petroleum Reassure
Assuring Domestic Abundance: The Export Tax Policy
The domestic supply chain is part of the second half of this policy pincer move. To make sure that the fuel refined in India remains in India, the government has reread and even increased export duties on petroleum products.
Taxing the Outflow
The new windfall taxes are aimed at ensuring that it is no longer profitable to sell their products at the foreign market as long as the domestic market is most in need of such products:
- Export Duty on diesel: 21.5 per litre.
- Export Duty on Aviation Turbine Fuel (ATF): This is fixed at 29.5 per litre.
This sends a flat message to the private refiners: the main market is the Indian market. The government is ensuring that the incentive is on the stocks of Indian fuel stations as it is taxing the super-normal profits that companies may be earning due to high international prices.
Read more: Air India Announces Fuel Surcharge Hike as Middle East Conflict
Eliminating the Clouds of Misinformation
During crisis, rumors tend to spread faster than facts. Cases of dry petrol pumps and fuel rationing had already been reported at different states and the resultant panic buying and long queues were experienced.
The government has been keen to stifle such stories. Authoritative sources have verified that India has a strong 60 day stock of fuel and also about 30 days of LPG supply. The Petroleum Ministry described the shortage reports as a misinformation campaign, which it described as intentional and urged citizens to stay calm and not panic hoard.
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