A realistic approach towards tax and stock taking is necessary, rather than the old narrative of bringing all petroleum products under GST and playing the blame-the-state game.
Illustration: Uttam Ghosh/Rediff.com
Last year when the global oil prices started their march upwards, all that the ministries of petroleum and natural gas, and finance had to say was that states should agree to bring five petroleum products into the goods and service tax (GST) fold.
These five products were natural gas, petrol, diesel and ATF, besides crude oil.
States, Finance Minister Arun Jaitley told the media, should cut other tax levied on petrol and diesel even as Finance Secretary Hasmukh Adhia, currently on leave, ruled out any cut in central excise duty that was increased steadily over two financial years till March 2017 when the global prices were low.
“We share the tax kitty collected through increases with the states,” the finance ministry said more than once.
Finally, on Friday Expenditure Secretary SC Garg admitted that the devil was at the doorstep.
The current account deficit would be impacted, he said at a press meet, indicating that the rupee could be under further pressure.
On the fiscal deficit front, however, he saw no reason to sweat. Why was he confident on fiscal deficit and subsidy?
There could only be two reasons: no cut in excise duty unless there is comfort on GST collections and other revenue sources, and no increase in subsidy that currently goes into two products, LPG and kerosene.
So who will bear the burden? Is it the oil companies? If so, then the days of controlled prices have returned for petrol and diesel.
Is it the consumer? If so, then it might be tricky for the NDA alliance in a crucial election year.
The government taking a cut on excise duty is a possibility only when it has comfort on revenue collection.
If the cut is done even without this comfort, then any rise in fiscal deficit will spook inflation.
Consider what Garg had to say on duty cuts: “Just watch. There has been adjustment to the prices past few days. What does that indicate?”
A counter question to a question is always suspect. He, however, did not rule out excise duty cut if the prices reached a certain level.
There cannot be anything more opaque than Garg’s answer at a time when the UPA followed by the NDA in a healthy continuation of political decisions fully decontrolled petrol in 2010 and diesel in 2014.
What, however, continued to remain under the control of government was excise duty.
This control was exercised by the government to increase duty by as much as Rs 10 on petrol.
The benchmark Indian crude oil basket was $55 in October 2017 when the only excise duty cut was passed on to consumers. In the Budget 2018, excise duty was cut by Rs 2 but there was an increase in infrastructure cess leading to zero gain for consumers.
Another question that comes up post Garg’s conference is, what has changed that it could no longer brush the concern on high price under carpet?
The current minister in-charge is Piyush Goyal after Arun Jaitley was hospitalised. But this may hardly be a reason.
The Karnataka election results also do not appear to be the reason about the government’s current account commentary.
Obviously, it is the breaching of the December 2014 level of crude oil price and a Rs 4 devaluation in rupee that has forced the government to admit a problem.
It is said half the battle is won if a problem is acknowledged.
What can be expected is a realistic approach towards tax and stock taking, rather than the old narrative of bringing all petroleum products under GST and playing the blame-the-state game.
This may still be a worry because tax cuts alone may not be able to check retail prices if OPEC continues with its cut, the political stalemate continues in Venezuela and US president Donald Trump pursues an adversarial policy towards Iran.
And, this will put to test the government’s resilience in petroleum pricing reforms.