The prices of fuel has reached its peak in India, after a week of daily surge in the rates – while the crude oil prices is just about $80 a barrel. While the Centre is still in dilemma about whether to lower or not lower the price of fuel. Here’s why the prices of fuel have taken a surge.

Looking back in time, when it was UPA rule in New Delhi, the prices of fuel were completely regulated by the government. To control the prices of petrol and diesel, the government get subsidies and it was tolerable even when the price of crude oil had surged to $140 a barrel – that is double of what it is right now. But when the NDA government took over, the fuel prices were deregulated and had become completely market driven – which luckily coincided with lower prices of crude, hence, people paid less and everyone was happy.

However, the party short-lived when the government increased its taxes on fuel to ensure it raked in higher revenues. The added fuel taxes where actually burning hole in pockets of common men even when the price of crude oil has remained fairly stable at around $60 a barrel or even lower – while we paid Rs 75-80 per litre. If that wasn’t enough, in past few months, the international price of crude has increased sharply – thanks to US’ policy towards Iran which added to the negative sentiment and pushed up prices. All this have summed up into a fuel price problem that is causing havoc among people of India, and the Centre can no longer ignore – especially not less than a year ahead of elections.

What government can do is, it can cut the excise duty or the state-implied VAT on fuels – which means dropping out cumulative collection of 90-100 percent for petrol and 65-70 percent for diesel. So say if we pay Rs 80 for a litre of petrol – now if the excise duty and VAT is removed, the prices reduce by Rs 35-40, making it half the price. This is what government’s reluctance about cutting out all taxes is – it doesn’t cut off a very useful source of revenue. These revenues have helped in controlling the growth in subsidy and also helped in bridging the fiscal deficit – who kills a hen that lays golden eggs? Well, the one who wants to regain the reign in New Delhi next year could.

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