How higher fuel prices are aiding rescue of PSBs

How higher fuel prices are aiding rescue of PSBs

Article taken from LiveMint.

In the last five years, the price of the Indian basket of crude oil has droppedYet, retail prices of petrol and diesel have remained largely unchanged due to higher excise duties on the fossil fuels


1) How has the price of oil moved over the last five years?

In May 2014, when Narendra Modi was elected prime minister for the first time, the price of the Indian basket of crude had averaged $106.85 a barrel. Since July 2014, the price of the Indian basket of crude has largely shown a downward trend, averaging $69.88 a barrel in March this year. As of 11 July, its price was even lower—$66.57 a barrel. Therefore, between May 2014 and now, the price of the Indian basket of crude oil has fallen close to 38%. Nevertheless, there hasn’t been a similar fall in the retail prices of petrol and diesel. The question is why.

2) Why have petrol and diesel prices not fallen proportionately?

In April 2014, the total central government taxes on petrol and diesel were 10.38 a litre and 4.52 a litre, respectively. In July 2019, the total taxes on the fuels are 19.98 a litre and 15.83 a litre, respectively. This means the excise duty on petrol and diesel has risen majorly over the years, including in the budget presented earlier this month. As can be seen from chart 1, the excise duty collected in 2013-2014 was 46,385 crore. By 2018-2019, this had jumped 361% to a little more than 2.13 trillion. This would not have been possible without the higher excise duty on petrol and diesel.


3) How have the govt’s revenue receipts grown during the same period?

In 2013-2014, the revenue receipts of the government stood at10.14 trillion. By 2018-2019, this increased 54% to 15.63 trillion.

4) What is this money being used for?

As chart 2 shows, from the start of 2013-2014 to the end of 2018-2019, the Centre invested close to 2.67 trillion in state-owned banks to keep them going. These banks have been facing a problem of bad loans, where corporate entities (primarily) have taken loans and not repaid them. Bad loans are largely loans that are not repaid for a period of 90 days or more. Given the defaults, the Centre has to keep investing in these banks to keep them going. This money primarily comes from the excise duty earned on petrol and diesel.

5) What is the situation this year?

After budgeting just 2 lakh in the interim budget, the Centre finally budgeted 70,000 crore to invest in public sector banks in 2019-20. This money will mainly come from the higher excise duty imposed on petrol and diesel. So, every time you and I buy a litre of petrol or diesel, we are contributing to the government coffers towards the rescue of public sector banks, irrespective of whether we bank with them or not.

Article taken from LiveMint.

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