Fuel price hike: Nirmala Sitharaman says 'issue of fuel prices is layered'; Here's why

Addressing the never-ending speculations and complaints of historic fuel price hike across states, Union Finance Minister, Nirmala Sitharaman, on July 1, stated that the issue of fuel prices was multi-layered. It is to be noted that fuel prices vary from state to state depending on the incidence of local taxes such as value-added tax (VAT) and other freight charges.

"Center levies fixed amount and state does that too. Rates increase with the price. Issue of fuel prices is layered," the Finance Minister stated.

Nirmala Sitharaman's take on fuel price hike explains the two-fold contributory factors in this regard. It is to be understood that while the excise duty is collected by the central government, the VAT supplements the state governments' revenue. It is to be noted that Central and state taxes advance 60 per cent of the retail selling price of petrol and over 54 per cent of the selling price of diesel. 

The continuing fuel price hikes have contributed to an all-round increase in prices, therefore petrol prices are ever-increasing. India's demand for fuel bounced back in June as a corollary to increased economic activities subsequent to relaxations in COVID-19 restrictions, this accelerated petrol sales by enormous figures when compared with pre-COVID graphs.

Centre's reply to concerns over fuel price hike 

While computing fuel price hike, one must know that since 2017 fuel prices are being revised on a daily basis. Public Sector Oil Marketing Companies (OMCs) are directed to take appropriate decisions on the pricing of petrol and diesel drawing parallel to international product prices, exchange rate, tax structure and inland freight with other cost elements too. Petrol prices in the country are linked to its price in the international market.

Earlier this year, the Centre had drafted a reply to redress enraged peoples' concerns over price hike in the country, it explained that the taxes on petrol keep changing basis policy of the present government. Considering the fiscal position of the country, these taxes are imposed for meeting budgetary requirements of GOI and state government levels so as to generate resources for infrastructure and other developmental items. The prices vary as per market situation too. 

Because fuel prices are controlled and decontrolled by global market forces, the burden is passed on the consumers once global prices go up.