Indian States can help in reducing fuel prices
For quite a while the Narendra Modi led government has taken flak from the opposition for the hike in petrol and diesel prices. The lashing out doesn’t end even after a slight drop in the prices, as expectations have become humongous after been given lessons by former cabinet minister in the UPA government P.Chidambram through his twitter handle.
Many amongst us and at times rightly so, want the Narendra Modi government to slash the taxes levied on petrol and diesel. However, we can hardly see the central government giving a serious thought to this. This presumably has further agitated the consumers.
We do not deny that the central government is not rightly held responsible for the hike in prices, but boiling down the complete tension to just one faction is not appropriate. Hence, the public lashing out should be divided to everyone involved in the botch.
We also heard people accusing chief ministers of various states for regulating the fuel prices, which we cannot deny. It is needless to say that the state governments are also levying taxes on fuel prices, which further escalates the maximum retail price.
So, they, the erstwhile state governments can also bring down the prices too.
A recent report says that ‘Given that this revenue if foregone will not impact states fiscal position, we estimate that on an average, states can cut petrol prices by Rs 2.65/litre and diesel by Rs 2/litre if the entire revenue gain was to be neutralized. This is the most plausible scenario under the current circumstances’.
The report also suggests a pricing mechanism where VAT is levied by the state. This then is imposed on the base price, which is apart from centre’s taxes. If this is managed well, we can see a good cut in the diesel prices by around Rs 3.75/litre and Rs 5.75/litre in the prices. However, if this was to happen then the states will have to forego of around Rs. 34,627 crore of tax revenue/0.2 per cent of a consolidated fiscal deficit of states, the report also states.
On the other hand, if Centre decides to compensate the excise duty by say Re. 1, they will bear Rs. 10,275 crore loss for every rupee. The amount will magnify further if they cut Rs. 2 in the excise duty.