Diesel Price Hike: Double Standards of State Governments

By Geetanjali Kedia

Government of India (GoI) had raised diesel prices by Rs.5 per litre (excluding VAT) from midnight of Thursday, 13^th September, 2012. Of this Rs.5 per litre increase, Rs.1.50 will go to the Union Govt. as excise duty, while, Rs.3.50 will be kept by OMCs, to meet their under recoveries. But to be just and fair, GoI has not kept this increased revenue of Rs.1.50 litre, from excise duty. On the other hand, GoI had reduced excise duty on Petrol by Rs.5.30 per litre, which is at Rs.14.35 per litre and adding education cess of 3% thereto, it works-out to Rs.14.78 per litre. As the consumption of diesel to petrol is in the ratio of 4.3:1 in litres, practically the entire gain due to higher excise from diesel hike has been passed on, by making reduction in excise duty on petrol. During April to July 12, domestic consumption of diesel was at 24.114 million tonnes, while that of petrol at 5.192 million tonnes, resulting in a ratio of 4.65 times. During FY12, diesel consumption was at 64.742 million tonnes, while petrol was at 14.993 million tonnes, a ratio of 4.32 times.

By doing so, the gap between diesel and petrol prices have narrowed down, thus discouraging use of diesel by the luxury car owners. However, excise duty reduction benefits on petrol, were not passed on to the consumers, but used by the OMCs, to curtail their under recoveries, with no under recoveries now left on petrol selling price. Indeed, a pragmatic and praise worthy move by the Central Govt!

Now take the effect of diesel price hike of Rs. 5 per litre on State Governments. In West Bengal, there is a VAT of 19% on diesel. Prior to price hike, diesel was sold at Rs.44.76 per litre, which is now being sold at Rs.50.71 per litre. A rise of 5.95 per litre! This has been shared by OMCs (Rs.3.50 per litre) Central Govt. (Rs. 1.50 per litre) and State Govt. (95 paise per litre).

A table of the same for four metros are given here under:

Mumbai is ruled by Congress & NCP, Delhi by Congress, Kolkata by TMC and Chennai by AIADMK. TMC, inspite of an ally of UPA-II and AIADMK, have raised their voices against this hike, in the interests of farmers and aam-admi. But can they take an initiative to lower the VAT on diesel, to neutralise the extra gain of the state government? Infact, they know it well that every hike in petro-product prices are giving gains to them as well, due to stiff rate of VAT, levied by the State Govt. on such products.

Ironically, upper class of society, who drives diesel vehicles, are also seen opposing this move, purely for their selfish motives. Do you know that daily, many of them, drives diesel vehicles, from their homes to factories and industrial units, which is about 100-150 kms. away? A diesel vehicle running about 6,000 km. per month, consumes about 400 litres of diesel. On this, under-recovery to the OMCs are about Rs.6,000 per month, even after this price hike of Rs. 5 per litre. This means, this section of society is putting a burden of Rs.6,000 per vehicle, on OMCs (read exchequer) to earn lakhs of rupees, from their factories. Because of paucity of resources at the end of the Govt., poor section of the society is deprived of their many of the needs.

So the mute point remains - for whom are these State Governments and upper sections of the society shouting and crying for?