Centre challenges non-BJP states to cut Value-Added Tax on fuel

Jeannie Matthews
October 6, 2018

In Kolkata, the petrol price was Rs 83.35 per litre while that of diesel was Rs 74.80 this morning.

Prime Minister Narendra Modi on Thursday held a meeting with his ministers over rising prices of petrol and diesel in the country.

So much for good governance?

► Maharashtra CM Devendra Fadnavis said: "Maharashtra government also chose to give additional relief of Rs 2.50 per litre on petrol to give a total benefit of Rs 5 per litre in the state of Maharashtra".

The state of Karnataka, who earlier slashed fuel prices by Rs 2, will not be announcing any more cuts. If the Centre is serious, it should reduce the tax to what it was when it assumed office. In Kolkata and Chennai, petrol prices climbed by 15 paise to Rs 85.80 and Rs 87.33 per litre, respectively.

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The first aspect of this plan involves the government cutting excise duty by Rs 1.5 per litre of petrol and diesel.

The shares of Indian oil marketing companies sank after the announcement, with Indian Oil Stocks down by 18.24 percent, HPCL stocks tumbled by 22 percent and BPCL stocks declined by 19 percent.

India stopped controlling petrol prices in 2010 and diesel prices in 2014, linking them to global crude markets in a bid to ease pressure on government finances and improve the earnings of oil refiners. Also, the rupee dropped to its lowest ever level of 73.77 against the dollar, resulting in expensive crude imports. Delhi charges a Value-Added Tax of 27 per cent on petrol and 17.24 per cent on diesel. "So the impact will be Rs 10,500 crore in current fiscal which is only 0.05 per cent of fiscal deficit". Yesterday, media reported that the Modi government had allowed local companies affected by the rise in oil prices to borrow internationally up to US$10 billion. Any further revenue loss, however, could widen the fiscal deficit.

"In general, what's driving emerging market weakness is a stronger USA economy ... there is a lack of clarity on the effectiveness of rate hikes as a currency defence", said Sunil Sharma, chief investment officer with Sanctum Wealth Management. "Therefore they would be in a position to absorb this", he said.

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