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Government the biggest gainer from petrol price hikes
November, 08th 2011

Its cheaper to tank up cars in Washington, New York, Karachi, Dhaka, Beijing and Colombo, among many other cities, than in Delhi and for a very good reason. About 40% of what you pay for petrol goes to the government as taxes and duties.

conservative estimates suggest that half the excise duty collection in the country is from petroleum products. In 2011-12, therefore, the Centre expects to earn about Rs 82,000 crore as excise duty from petroleum products. A Rs 1 cut in excise duty on petrol results in a revenue loss of  about Rs 4,000 crore or 10% of the outlay for the rural employment guarantee scheme and reduces its ability to spend on welfare schemes and other heads.

Then, coupled with the governments inability to keep its expenditure under control, there are massive leakages in direct and indirect tax collections and complete exemption of agricultural income from taxes. This explains the governments unwillingness to cut taxes on petroleum products.

Why is the government reluctant to cut taxes and duties on petroleum products? asked Jayati Ghosh, professor of economics at Jawaharlal Nehru University. The government is extracting revenues from the weaker sections of society by taxes on petroleum products. This amounts to profiteering on part of the government.

Lower revenues would also widen the fiscal deficitbudgeted at 4.6% of GDP or Rs 4,65,000 crore this year forcing the government to borrow more from the market to fund its current expenditure.
The economics of auto fuel retailing in India works out somewhat like this: The average price of crude purchased by India is at $ 110 (Rs 5,280) a barrel this year. 
Each barrel contains about 159 litres, implying crude oil costs Rs 33 per litre. Add to this the cost of refining and other costs incurred by oil companies the effective price of petrol at oil depots works out to Rs 41 a litre.
In India, we have low taxes on diesel, kerosene and LPG because these directly affect the weaker sections of society. Moreover, diesel is used for transportation and the Railways as well, RS Butola, chairman and managing director of Indian Oil Corporation, told HT.

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