There’s no need for the Centre to roll back the petrol price. If states are so worried about the impact on the aam aadmi, they could try and cut the high taxes on the fuel. Goa did it once before; a
fter the current hike, Uttarakhand and Kerala went ahead and did the same, reducing the overall impact of the Rs 7.5 per litre hike by oil marketing companies by about Rs 1.6 litre.
If states are worried about losing revenues, here’s a possible solution: they could try implementing a fixed level of tax per litre of diesel instead of imposing tax based on the price of diesel. That way, they are assured of some taxes irrespective of whether the price of fuel goes up or down. Why should consumers have to put up with a situation in which nearly half the price of fuel is composed of taxes imposed by the states and Centre?
The primary problem in our oil sector is overpricing of petrol and underpricing of diesel. This is prompting the dieselisation of the economy, encouraging overconsumption of the fuel and incentivising
heavy investment in diesel cars - cars that are used more by the rich than the poor. There is no case for raising petrol prices; in fact they should be cut by around Rs 15 a litre to Rs 60-62, and diesel prices should be raised by around Rs 10 - in stages, so that they do not hurt the economy.
If we accept this proposition, there is no case for asking states to cut taxes. In fact, states have fewer taxation avenues than the centre, and asking them to cut oil taxes is like asking the poor to start fasting. At best, we could ask states to replace ad valorem taxes with specific levies so that every time fuel prices are raised, the taxes don't have to go up. Similarly, if fuel prices fall, states won't lose revenue. In any case, there is no reason to keep overall fossil fuel prices low by low taxation. With climate change a big challenge, higher fuel taxes are justified to keep carbon emissions low. What is not justified is the diesel-petrol differential. So petrol prices should be rolled back and diesel raised instead.