Striking a balance
Bringing petroleum products under the ambit of GST is economically viable and could reduce the prices to the welfare of people
Brent crude oil prices averaged USD 55 per barrel in January 2021, which was USD five per barrel higher than the December 2020 average price, but USD nine per barrel less than from January 2020. The reason for the fluctuations in the price of crude oil in the international market is due to controlled production by producing countries for their benefit.
The states of Maharashtra, Uttar Pradesh, Tamil Nadu etc. have generated the highest revenue in the nine months of FY 2021 by imposing sales tax or VAT on petroleum products. Last year too, these states generated the highest revenue from VAT or sales tax. The average share of all states in revenue from petroleum products is about 15 per cent.
The state governments do not want to bring petrol and diesel under the Goods and Services Tax (GST) due to a huge amount of revenue earned from sales tax or VAT. Not only this, but the Central Government is also earning money by levying excise and customs duties on various products made from oil and oil products. Due to this, petrol and diesel have not been brought under GST so far.
It is worth mentioning that no transparent process is adopted in the pricing of petroleum products in any country of the world, but due to the federal structure of India, there is a lot of difficulty in the pricing of petroleum products here. At present, each state has its own tax structure and state governments are levying taxes on various products as per their requirements.
If we assume, the crude oil price is USD 60 per barrel and the dollar exchange rate is Rs 73, the transportation charge for diesel is Rs 7.25 and Rs 3.82 for petrol, dealer commission is Rs 2.53 for diesel and Rs 3.67 for petrol, cess on petrol is Rs 30 and Rs 20 on diesel and GST of 28 per cent (14 per cent for the Central Government and 14 per cent for the State Government), then the price of petrol would be Rs 75 and price of diesel would be Rs 68 per litre.
If the price of crude oil remained at USD 50-60 per barrel and petrol and diesel prices remained at Rs 75 and Rs 68 consecutively, then increased consumption of petrol and diesel can fetch revenue from Rs 35,000-50,000 crores. Due to this, the total revenue loss of the Central and state governments, which is estimated at Rs 1.30-1.50 lakh crore, can be reduced to around one lakh crore. Though the states which have levied higher taxes on petrol and diesel may suffer more in the GST taxation structure, this will bring uniformity in the price of petrol and diesel across the country and will benefit those states which have levied lesser taxes on petrol and diesel. This will benefit the common man the most. According to an estimate, due to the low price of petroleum products, they can save up to 10 to 30 rupees.
In the year 2018, under the Pradhan Mantri Ujjwala Yojana (PMUY), the Government had given free gas connections to eight crore poor families. Now in the Budget of 2021-22, the Government has announced to give one crore more LPG connections to the needy, which will be given in the next two years. So that clean fuel can be made available to 100 per cent of the population. Although the PMUY has resolved the problem of clean fuel availability, for the time being, the challenge of maintaining this availability will remain before the Government even in the coming months and years.
According to the latest figures of the Controller General of Accounts (CGA), the Government's fiscal deficit reached a level of Rs 12.34 lakh crore at the end of January 2021, which is 66.8 per cent of the revised estimate for FY 2021. The expenditure figures show that the Government has already spent Rs 25.17 lakh crore, which is 73 per cent of the revised Budgetary estimate. Significantly, according to the revised Budgetary estimate, Rs 34.50 lakh crore was to be spent. 83 per cent of the revised budgetary estimate of Rs 4.38 lakh crore has already been spent on capital expenditure, but the Government still has to spend a total of Rs 0.76 lakh crore towards capital expenditure till March.
The Government has earned revenue of Rs 12.42 lakh crore by January 2021, especially on the excise tax front, which is 79.9 per cent of the revised budget estimate for FY 2021. It is noteworthy that in the same period of the last financial year, the Government had achieved 66.3 per cent of the revenue of the budgetary estimate under this head. The Government has an additional amount of Rs one lakh crore due to the high revenue collection. The Government also currently has a cash surplus of Rs 2.34 lakh crore. Even after adjusting the amount of the states' share, the Government is estimated to have a cash surplus of about Rs 0.5 lakh crore by March 2021. The fiscal deficit can also come down to 0.8 per cent of GDP. It will thereafter reduce from 9.5 per cent to 8.7 per cent of GDP.
Today, due to the increased price of petrol and diesel, inflation is also increasing. There has also been an unprecedented increase in the price of LPG. Further, there may be difficulties in running the Ujjwala scheme. The price of other petroleum products has also increased. Food and transport fares are also increasing, while the common man is already suffering from the negative impact of the pandemic. Employment of crores of people has been snatched away. Many people are facing difficulties in arranging two-time meals.
In the current economic scenario, it is not difficult to reduce the price of petrol and diesel. The economic condition of the central and state governments has already improved and it is likely to improve further in the coming months.
India is a democratic and welfare country, therefore, it is the duty of the Government to redress the problems of its citizens like a guardian. By the way, if the state and Central Government wish, then in the long term, the price of petrol and diesel can also be brought under the purview of GST. This will benefit both the state and Central governments. Also, the common man will get relief.
The writer is the Chief Manager in the Dept of Economic Research at the Corporate Centre of SBI, Mumbai. Views expressed are personal