Data | Govt. keeps increasing fuel prices to shore up revenue, will it work?

Fuel prices were hiked for the 10th consecutive day on Tuesday even as crude prices remained low. The hike came after many sharp increases in the Centre’s excise duty component in 2020. This could be to offset the loss in government revenue which missed targets by a wide margin in FY20. However, gains are unlikely as fuel consumption dropped steeply due to the COVID-19 lockdown.

Rising prices amid falling crude price

The price of petrol (represented by the orange line) in Delhi increased from Rs. 71.26 per litre on June 5 to Rs. 76.73 per litre on Tuesday, while the price of diesel (represented by the light blue line) increased from Rs. 69.39 per litre to Rs. 75.19 per litre in the same period.

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Govt. revenue down

The gross tax revenue (GTR) and corporate tax revenue (CTR) collected were 18% points and 27% points lower, respectively than the Budget estimates presented in February. Moreover, GST collections fell again in March.

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Also read: Data | Market arrivals dip, procurement delays: How COVID-19 impacted agriculture

Fall in petrol and diesel consumption

The chart shows the petrol and high speed diesel consumption from May 2014 and May 2020. Both saw steep falls in April before recovering a bit in May.

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Excise duty hike

The chart shows the retail price of petrol in Delhi (grey bar, left axis), the excise duty and value added tax levied for every litre.

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Last word

While crude price has been consistently low, the government has again chosen not to pass the benefit to the consumer but to augment its dwindling coffers. With lockdowns extending in major cities, the revenue gain from the move may be minimal.

Sources: Petroleum Planning and Analytics Cell, Union Budget documents, GST council

Also read: Data | Corporate tax cuts fail to spur investments, revenue loss higher than expected

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