Oil Minister Dharmendra Pradhan meets Finance Minister Arun Jaitley as fuel prices touch new high

Concerned over the spike in fuel prices, Finance Minister Arun Jaitley met Oil Minister Dharmendra Pradhan to look at options to mitigate its impact on the economy, sources aware of the discussion said.

The two ministers met on September 3 evening amid concerns of high fuel prices adding to farmers' distress, particularly in the upcoming Rabi crops season, sources said.

Diesel, which is being sold at record high prices, is the most used fuel in the farm sector. Tractors tilling the soil to irrigation pump sets - all use diesel, and a spike in its prices is bound to add to the cost of farming.

The two ministers are believed to have discussed options to mitigate the impact of rising international oil prices and rupee dipping to new lows. Petrol prices were Thursday hiked by 15 paise a litre and diesel by 20 paise, according to price notification of state-owned oil firms.

The hike pushed petrol price in Delhi to an all-time high of Rs 84 per litre and diesel to Rs 75.45. Rates of subsidised domestic cooking gas, too, have breached the Rs 500-mark for the first time.

India is the third largest importer of crude oil and rising international oil prices are inflating domestic transport fuel costs in a strong demand environment. Brent, the benchmark for more than half the world's oil, is trading at a four-year high of over USD 84 per barrel. 

Rupee Thursday dropped to 73.77 against the dollar, resulting in expensive crude imports.

Since mid-August, the petrol price has risen by Rs 6.86 a litre and diesel by Rs 6.73 - the most in any six-week duration after the daily price revision was introduced in mid-June last year.

Domestic cooking gas (LPG) now costs Rs 502.40 per 14.2-kg cylinder.

Sources said the options before the government are very limited. Neither the centre nor the states have the bandwidth to make any steep cut in excise duties and sales tax due to limited fiscal space available in an election year.

The only option could be to ask the oil companies to freeze prices and recoup losses when rates fall in future.

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While a cut in excise duty that the central government levies will impact fiscal deficit, states like Bihar, Kerala, and Punjab are not in a position to cut sales tax (or VAT), they said.

Rajasthan, Andhra Pradesh and Karnataka are among the handful of states which have reduced VAT to give some comfort to consumers.

A one rupee per litre cut in excise duty results in over Rs 14,000 crore of revenue loss to the centre on an annualised basis.

Almost half of the fuel price is made up of taxes. The centre levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy value added tax (VAT) - the lowest being in Andaman and Nicobar Islands where a 6 per cent sales tax is charged on both the fuels.

Mumbai has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel. Delhi charges a VAT of 27 per cent on petrol and 17.24 per cent on diesel.

The central government had raised excise duty on petrol by Rs 11.77 a litre and that on diesel by Rs 13.47 a litre in nine installments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October last year by Rs 2 a litre.

This led to its excise collections from petro goods more than doubling in the last four years - from Rs 99,184 crore in 2014-15 to Rs 2,29,019 crore in 2017-18. States saw their VAT revenue from petro goods rise from Rs 1,37,157 crore in 2014-15 to Rs 1,84,091 crore in 2017-18.

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