Why isn’t the government doing anything to reduce fuel price?

A simple way to reduce fuel price is to cut back on the taxes levied on it. However, not charging taxes on petrol and diesel would hurt the government’s revenue, which will further hurt its deficit that’s already is too much to deal with. For the same reason, the majority of states cannot cut VAT on petrol and diesel because it would hurt their pockets, which could negatively put a pressure on their economic growth and development. So, the government – at least the one at the center – won’t take this measure. In fact, according to sources, officials have already confirmed that the government won’t cut back on excise duty to reduce fuel price. So, this is out of the question.

Another step the government can take is to charge taxes on the private oil production companies. These companies are paid according to the international price of oil even when their cost of production and maintenance is much lower. Given the USD-INR difference, currently, is at its all-time-high, these companies are taking big profits home at the cost of common people. The government can tax their returns and then pass on the benefits to the oil retailers, who can provide petrol and diesel to end users at a subsidized rate.

(Courtesy: Business Today)

This measure seems like a fitting one to reduce petrol and diesel price. And, in fact, according to few reports it’s being said that the central government might just take this step soon. However, thing’s aren’t quite binary here. Some of the Private Oil companies in India include Reliance Petroleum Limited and Hindustan Petroleum. Yes, Reliance Petroleum.

It’s not a secret that the BJP government and Reliance Industries (or Mukesh Ambani) are on quid pro quo terms; one benefits the other. So, it would be quite a surprise if the government decides to limit Ambani’s fortune by levying taxes on his company’s profits. I mean we have seen to what extents can the government go to support Adani and his endeavors. If anything, for whatever reasons, Ambani (and Adani) has been one of the biggest beneficiaries since the Modi government came into the power. So, the government taking the second measure to reduce fuel price by going against the goodwill of Ambani’s company might not happen.

(Courtesy: Bhatkallys.com)

These are 2 basic reasons why the government has decided to sit on the sideline and see how the market pans out instead of acting to reduce fuel price.