Friday 27 May 2022
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States’ tax component reduced by BJP govts; opposition-ruled provinces refuse to follow suit

PM Modi pleaded with the opposition chief ministers in the spirit of cooperative federalism to reduce the fuel taxes in their states too and transfer the benefit to the citizens

As Prime Minister Narendra Modi requested states to reduce their respective fuel taxes and pass on the benefits of the cut to consumers, citing the war between Russia and Ukraine that continues to shore up India’s fuel import bill, he also noted that while BJP ruled states followed the union government’s move to slash central taxes on and diesel (excise) by removing the value added tax (VAT), some states — he named the non-BJP ruled states — decided to continue to charge fuel taxes to earn revenue.

Prime Minister Modi was addressing chief ministers after a Covid-19 review meeting. He pleaded with the states, in the spirit of cooperative federalism, that they should reduce the fuel taxes too and transfer the benefits to the citizens of the respective provinces.

The prime minister informed the chief ministers that Karnataka would have earned an additional Rs 5,000 crore revenue, if it had not cut the VAT on and diesel, similar to Gujarat. The state would have earned Rs 3,500 crore to Rs 4,000 crore more revenue if it had not reduced the VAT on petrol and diesel. However, the states neighbouring Karnataka and Gujarat earned Rs 3,500 crore to Rs 5,500 crore by not reducing the VAT in their respective states.

The prime minister said, “In the developing war situation, as the supply chain has been impacted, it is even more important for the Centre and the states to work in tandem in taking economic decisions. In these times of global crises, the states should operate with the spirit of cooperative federalism.” Prime Minister Modi said further that his government had reduced the excise in November 2021 to provide relief to the citizens from the trend of fuel price hike.

It must be noted in this context that the prices of and diesel have long been deregulated. The Manmohan Singh government had deregulated the diesel price whereas the Modi government deregulated the petrol price. Strangely this information failed to be disseminated to many citizens who keep blaming the government of the day for the infalionary trend in fuel prices.

Crude oil processing companies, like the state-owned ONGC, import the fuel and when the import price shoots up internationally, they approach the government to revise the prices up. Even if the government agrees, it may ask the oil PSUs to withhold the price hike for various factors including the political one, which is electoral. And when the price is hiked, as in the case of subsidies to the poor by banks, the oil company is reimbursed at the end of the fiscal year, which means the company has to bear the additional expense for a full year until it gets the repayment.

From grease to kerosene to ship oil to diesel to aerosol to naphtha to petrol to compressed natural gas, every upper petroleum product in the fractional distillation column successively costs higher than the lower one because in the order of the lowest to the highest part of the refinery, the process involves more and more refinement [illustration below].

Prime Minister Modi told chief ministers today, “In the developing war situation, as the supply chain has been impacted, it is even more important for the union and the states to work in tandem in taking economic decisions. In these times of global crises, the states should operate with the spirit of cooperative federalism,” and added the central government had reduced Excise in November 2021 to provide relief to the citizens from the increasing inflationary trend.”

The union government has followed up with the states to reduce VAT and transfer the benefits to the citizens. “Some states agreed to the union government’s plea and reduced VAT in their states whereas many did not pass on the benefit. As a result, in these states, the prices of and diesel are more compared to other states. This not only amounts to injustice to the people of their states but other states also have to lose out,” the prime minister said.

Prices of and diesel in non-BJP-ruled states

State  / Diesel
Maharashtra Rs 120.51 Rs 104.77
West Bengal Rs 115.12 Rs 99.83
Tamil Nadu Rs 110.85 Rs 100.94
Andhra Pradesh Rs 121 Rs 103.88
Kerala Rs 117.19 Rs 102.26
Telangana Rs 119.49 Rs 105.49
Jharkhand Rs 108.67 Rs 102.02
Delhi Rs 105.41 Rs 96.67

Prices of and diesel in BJP-ruled states

State Petrol / Diesel
Assam Rs 105.66 Rs 91.40
Uttar Pradesh Rs 105.21 Rs 96.78
Uttarakhand Rs 103.73 Rs 97.34
Karnataka Rs 110.66 Rs 94.39
Gujarat Rs 104.96 Rs 99.32
Haryana Rs 106.02 Rs 97.25
Himachal Pradesh Rs 105.83 Rs 89.62
J&K Rs 108.60 Rs 92.04
Madhya Pradesh Rs 118.16 Rs 101.19

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