At a meeting with Chief Ministers about the resurgence of COVID-19 on Wednesday, Prime Minister Narendra Modi charged Opposition-ruled States with committing an injustice to the people by not cutting duties on petroleum products as the Centre had done in November 2021. Those cuts of ₹5 and ₹10 per litre of petrol and diesel, respectively, came as fuel prices crossed well past ₹100 a litre — those levels have been breached again after a poll-driven lull. The PM noted that the Centre’s plea at the time, for States to back these cuts by paring their VAT levies on petroleum products, was not heeded by States not governed by the BJP. But even NDA-administered States are now facing extremely high inflation — retail inflation in April was 8.19% for Uttar Pradesh and Assam, and 7.4% to 7.6% in Bihar, Jammu & Kashmir and Haryana — far higher than the national retail inflation rate of 6.95% for the month. The PM’s remarks, buttressed by the slogan of cooperative federalism, attracted an instant backlash from West Bengal, Tamil Nadu, Maharashtra, Kerala, Telangana, Jharkhand and Andhra Pradesh. While all States are fretful about resource constraints and pending dues from the Centre, some had reduced VAT on fuel products and others have not hiked rates for years. Despite its recent assertions that no taxes were levied to counter the pandemic, the Centre had hiked fuel taxes even amid the 2020 COVID-19 lockdown with a preference for cess levies that do not have to be shared with States.
While the political brouhaha over the PM’s pitch unfolds, the signal for the common man is clear — abandon any hope of immediate relief. This is akin to striking a cruel blow against the middle and lower-income classes, already besieged by successive setbacks on the job, health and income fronts. Household budgets are severely squeezed because of price rise. Even industry has mooted fuel tax cuts to sustain a fragile consumption recovery. With record tax collections last year and revenue buoyancy expected to hold up this year, the Centre has fiscal room to slash its fuel taxes, and there will be an automatic cascading effect on State taxes levied on an ad valorem basis. Expecting States, which are worried about their limited revenue sources once the assured GST compensation stops flowing from this July, to take the lead in reining in petroleum taxes, is unwieldy, short-sighted and unnecessarily confrontational. Even more so as the States are also expected to ramp up capex spending to revive the economy. As the PM said, the Centre and States need to coordinate better to spur the economy amid global tumult. Singling out a few States to deflect attention from the Centre’s excessive reliance on fuel taxes is not the right approach to attain such harmony. Most of all, as high inflation will debilitate the recovery’s momentum, shirking corrective action to bolster its revenue kitty would be a case of being penny wise and pound foolish.