Real motive behind fuel prices cut

With the one-year anniversary of the farmers' protest in Delhi round the corner, the abrupt cut in fuel prices raises many eyebrows. Recently, the Government of India, in a notification by the Finance Ministry on November 3, announced a reduction of Rs 10 and Rs 5 per litre for diesel and petrol prices respectively across the country. The Central government even urged the States to reduce VAT on diesel and petrol in order to provide more relief to the consumers.

The main objective stated for the move is to boost the income of the farmers during the upcoming Rabi season. On the eve of Diwali, the announcement came as a 'Dhamaka offer' but when we consider the Central government's concern for the farmers, then it is not that acceptable. If the government can do anything best for the farmers now, it is to scrap the three farm laws. With upcoming elections in BJP-ruled States of Uttar Pradesh, Uttarakhand, Goa and Manipur, apart from Punjab, the move looks more like an election strategy.

Soon after, Gujarat, Karnataka, Uttarakhand, Manipur and a few other States announced an additional VAT cut on the two fuels under their ambit. Some of the non-BJP-ruled States also followed suit and cut their state VAT on fuels. Telangana is yet to announce VAT cut on fuels.

Over the last few years since the rollout of GST, the excise duty on these fuels was raised many times. The fuel prices were soaring high with the highest being Rs 110 and Rs 100 per litre for petrol and diesel respectively. The excise duty was also said to be high because of the high taxes like customs duties and the increase in global crude oil prices. Commenting on the move, senior Congress leader and former Union Minister P Chidambaram said "the results of the recently concluded by-elections had a by-product in the form of a reduction in excise duties on fuel."

This sudden reduction also contradicts the Central government's argument in the past weeks that the high fuel prices helped in funding the Covid vaccination drive and other welfare measures. When we look back into recent history, we see that one of the factors that drove Narendra Modi to victory in 2014 was the BJP's manifesto promise of cutting down fuel prices.

The Modi government is well known for its agenda-setting for elections and now it has tried to distract the attention of the citizens from Covid cases and the sky-rocketing fuel prices. It is the party's strategy to woo the consumers now by getting the price cut on fuels. The highest cut ever announced in the run-up to elections is by Uttar Pradesh, i.e, Rs 12 per liter on both the fuels. The announcement came a day after the smooth win of BJP candidates in some States and setback to the party in some other States. This affirms the theory of underlying objective behind the price cut.

The Assembly elections in the five States are due early next year. Almost three-fourths of the taxes accrued from the petrol and diesel go to the Central exchequer and one-fourth go to the States. The government stands to lose approximately Rs 1 lakh crore from the excise duty cut on petrol and diesel. As per an analysis in Business Standard, the cut in excise duty is going to cost a revenue loss of 43,500 crore to the government or 0.2% loss to the GDP in the current financial year.

Moreover, this cut comes amid the fall in global market crude prices as the US gasoline stocks rise. The cut in pre-election time is likely to influence the saffron party's prospects in both the BJP and non-BJP ruled States. On the promised relief to farmers, it is also expected to ease the inflation a little bit. However with elections slated next year, it is a wait-and-watch show of how well the BJP plans its strategy. And it is to be seen how it highlights the cut and builds its election agenda on it.