Follow us on
Welcome Guest! You are here: Home » Business & Economy
Falling crude puts oil, finance ministries at cross-purposes
Wednesday January 7, 2015 7:57 PM, Biswajit Choudhury, IANS

With global crude oil prices going below $50 a barrel on the first Tuesday of January, India's finance and petroleum ministries find themselves at cross-purposes in a way that recalls the Roman two-faced god of the month, Janus.

Before the first week of the New Year ended, the Indian basket of crude oil has come down from $105 a barrel in April 2014 to $49 on Jan 6.

To make up for fall in taxes due to the sustained decline in prices, the government, on New Year's Day, raised the basic excise duty on petrol and diesel for the third time in quick succession even as the expected price reduction on fuels failed to materialise.

Indeed, one can in jest point to the conspiratorial aspects of a situation created last week, where with such expectations at their height, and on a day when state-run oil marketers steeply cut rates of aviation fuel and non-subsidised LPG, the website of the Indian Oil Corp (IOC) was reportedly hacked by a Turkish group as a result of which dates and data on price changes were reflecting wrongly for some time.

The government said the revenue collected from the additional excise would go towards funding an "ambitious infrastructure development programme", including 15,000 km of road construction, for the current and the next financial year.

"However, retail price of petrol and diesel will remain unchanged all over India despite additional excise duty of Rs.2/litre from midnight," Petroleum Minister Dharmendra Pradhan tweeted after the excise hike last Thursday.

The money would fund welfare schemes, Pradhan said.

Taxes on petroleum products contributed Rs.260,000 crore in 2013-14 to the combined resource pool of the centre and the states.

Excise duty is the biggest component of central tax revenue from petroleum and collection from the sector rose from Rs.68,000 crore in 2011-12 to Rs.77,000 crore in 2013-14, which was more than one third of its total excise duty collections of Rs.179,000 crore in 2013-14.

Finance Minister Arun Jaitley told parliament during its winter session that the additional excise imposed will help the government limit fiscal deficit to 4.1 percent of the GDP in the current fiscal.

While consumers have been spared the impact of the excise hike, fuel prices have a cascading effect on inflationary processes and the duty increase will artificially maintain the gap between the global and domestic price.

The most significant piece of reform in the sector has come with the deregulation of diesel in October after years of subsidizing the rich consuming this transport fuel. The falling global crude oil prices have helped the government reduce petrol price seven times since August and diesel price thrice since October.

On the other hand, excise duty hits the oil companies hard, as all three state-run refiners - IOC, Bharat Petroleum and Hindustan Petroleum - recorded sequential drops in their gross refining margins in the September quarter, as falling crude oil prices led to inventory losses.

Indian Oil reported a net loss of Rs. 898 crore in the July-September quarter against a net profit of Rs.1,683 crore in the same period last year, resulting in an inventory loss of Rs.4,272 crore.

Lauding the government's decision to hike excise duty on transport fuels, industry chamber Assocham has called for installing an oil price regulatory mechanism to ensure a surplus to be used in hydrocarbons exploration and development.

"The oil and gas prices for the consumer would have to be kept at a reasonable level adjusted every quarter through an independent mechanism to create surplus that could then be utilised in exploration and development of oil/gas fields," it added.

Assocham said the principle in price regulation should be to prevent precipitate fall in consumer level prices and create as much surplus as possible.

And what of this remarkable descent of oil, whose low prices drove growth in the post-War world, and is driving India's concerned ministries to cross purposes?

Analysts ascribe quite a few reasons for the slide in prices - a threat of recession in Europe, cooling off of growth in China, the shale boom in the US and steady production from OPEC member states. OPEC's decision not to cut production despite prices being in downward spiral is being seen as driven by Saudi Arabia's long term strategy to drive US shale out of business.

(Biswajit Choudhury can be reached at



Share this page
Note: By posting your comments here you agree to the terms and conditions of
comments powered by Disqus
| Quick links
Contact us
Subscribe to: RSS » Facebook » Twitter » Newsletter Disclaimer | Terms of Use | Advertise with us | Link Exchange is part of the Awaz Multimedia & Publications providing World News, News Analysis and Feature Articles on Education, Health. Politics, Technology, Sports, Entertainment, Industry etc. The articles or the views displayed on this website are for public information and in no way describe the editorial views. The users are entitled to use this site subject to the terms and conditions mentioned.
© 2012 Awaz Multimedia & Publications. All rights reserved.