We need to rethink whether arbitrary levies that effectively double fuel prices improve public welfare.
For every additional rupee in tax, the government gets Rs 130 billion more revenue (as reported by PTI) while according to the Economic Survey 2017-18, for every $10 per barrel increase in crude prices, GDP growth is reduced by 0.2-0.3 per cent. It was estimated to be more than double that by the Institute of Energy Economics, Japan, in May 2012.
Chart 2 shows the effects of rising oil prices on importing nations.
From a completely different perspective, consider how keen political parties and candidates are in election mode to appease or cajole voters. This happened in the run-up to the Karnataka Assembly elections in April. Local newspapers ran headlines about petrol and diesel prices held steady for nearly three weeks until May 14 despite rising international prices. Only then were prices allowed to soar (Chart 3).
Since keeping fuel prices in check is recognised as a palliative for elections, what could be the reason for avoiding a decrease in taxes and levies when the price of crude rises? Presumably, concern about the deficit. Perhaps what needs to be thought through is the benefits of reducing input costs to increase collections from higher growth.
Above all, rational pricing of inputs by reducing taxes is a desirable beginning that can be acted on immediately.