The Congress-led Karnataka state government increased petrol and diesel prices by Rs 3 per litre, attracting a wave of criticism from the opposition for imposing higher tax on the people.
On June 16, the Karnataka government led by Chief Minister Siddaramaiah announced the increase in sales tax on petrol and diesel in the state citing the need for funds for the development of the state.
Moneycontrol looks at the rationale cited by the government for the price hike, and its implications.
What has been the impact on prices?
According to a notification by the Karnataka state government, sales tax on petrol was increased from 25.92 percent to 29.84 percent, while it was hiked from 14.34 percent to 18.44 percent for diesel.
In line with the increase in sales tax, petrol prices in Bengaluru rose to Rs 102.84 per litre from Rs 99.84 per litre, and diesel prices to Rs 88.95 a litre from Rs 85.93.
As fuel prices directly impacts prices of all goods, the impact is expected to be felt in other sectors as well, primarily transportation.
What has been the stance of Karnataka government?
CM Siddaramaiah defended the move taken by the state government saying the revised fuel prices in Karnataka were still lower than neighbouring states including Maharashtra. He also accused the former BJP-led state government of diverting funds to the Centre by keeping value added tax (VAT) lower in the state as against higher central taxes.
Siddaramaiah said the state government requires more money to implement the development schemes promised by the party in the state. The government expects to generate around Rs 2,000 crore this fiscal on account of the fuel price hike.
What did the opposition accuse Siddaramaiah of?
After the fuel price increase was announced by the Karnataka government, the Karnataka BJP held protests statewide demanding the roll back of the price hike.
Minister of Petroleum and Natural Gas Hardeep Singh Puri said people of Karnataka would be forced to pay higher amounts for food items, clothing, medicines and all basic necessities as fuel prices directly impact prices of all goods.
Puri also accused the Congress-led state governments of imposing higher VAT as compared to BJP-run governments.
Would other state governments follow suit?
As of now, it remains unclear if other Congress-led state governments would also hike fuel prices in their respective states. Meanwhile,the BJP-led Rajasthan government on March 14 had slashed VAT on petrol and diesel by 2 percent.
Petrol and diesel prices remain highest in Hyderabad and Kerala.
Petrol prices in Hyderabad are currently at Rs 107.41 per litre while prices in Kerala’s Trivandrum (Thiruvananthapuram) are at Rs 107.28 per litre. Petrol and diesel prices in Mumbai and Jaipur are also among the highest in the country at Rs 104.21 per litre and Rs 104.85 a litre, respectively.
How are fuel prices decided in the country?
Oil marketing companies (OMCs), including Indian Oil Corporation Ltd (IOCL), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), decide retail fuel prices in the country. The OMCs on March 14 slashed fuel prices in the country by Rs 2 per litre after a gap of almost two years, ahead of the Lok Sabha elections.
Typically, OMCs revise retail petrol and diesel prices daily, based on the rolling average of international benchmark prices over the past 15 days. However, the companies had left fuel prices unchanged since April 2022 despite corrections in crude oil prices. The decision to not revise fuel prices was taken in late 2021 and 2022 when crude oil prices had skyrocketed to high levels of $140 per barrel to protect Indian consumers from inflation.
The state governments—in addition to central excise duty—levy VAT on fuel prices decided by the OMCs.
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