Reduce prices without further ado

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Very few things have dominated public discourse over the past several months like the mounting prices of petrol and diesel. Whenever the chorus to bring down petro-fuel prices became shrill, the government has resorted to two arguments. First, it consistently put the blame at the door of the global crude supplies, arguing that the continuous upward movement of prices of crude oil was an obstacle in the path of reducing the domestic retail price. Two, the huge revenue that it collected from petrol and diesel was utilised to foot the bill of various welfare projects to mitigate the hardship of the bottom-of-the-pyramid residents during the pandemic when millions lost their jobs and wages were slashed pushing crores into the embrace of poverty.

Though crude prices are now coming down slowly but steadily, oil marketing companies are yet to respond to the decline by reducing their price. They have held the price line for the past few days but have not yet brought them down. The argument has toed the line that the decline in global crude is yet to stabilise at lower rates and, therefore, cuts in prices would be premature.

The authorities must understand that they are dealing with a problem that is singeing the entire country and it is not a fancy demand of a handful of vocal citizens. They must respond to it immediately. The Reserve Bank monetary policy committee has said more than once that petrol and diesel prices need to climb down from their historical high levels to deescalate the cost-push pressures on the economy.

India has the dubious distinction of taxing petrol and diesel at the highest rates in the world. Both the Centre and state governments rely excessively on this easy revenue. At least two research agencies have pointed out in the past few weeks that there is room for reduction of Rs 8/litre and more by bringing down taxes — excise for the Centre and VAT for the states — without compromising the Union budget targets. In simpler words, the Centre was extracting more revenue from these two fuels than what it estimated in the budget. In the long term the government must stop treating taxes of petrol and diesel as a low hanging fruit in the garden of the economy and bring it under the GST umbrella.