In the past few months, retail prices of petrol and diesel have consistently increased and have reached all-time high levels.  On September 24, 2018, the retail price of petrol in Delhi was Rs 82.72/litre, and that of diesel was Rs 74.02/litre.  In Mumbai, these prices were even higher at Rs 90.08/litre and Rs 78.58/litre, respectively.

The difference in retail prices in the two cities is because of the different tax rates levied by the respective state governments on the same products.  This blog post explains the major tax components in the price structure of petrol and diesel and how tax rates vary across states.  It also analyses the shift in the taxation of these products, its effect on retail prices, and the consequent revenue generated by the central and state governments.

What are the components of the price structure of petrol and diesel?

Retail prices of petrol and diesel in India are revised by oil companies on a daily basis, according to changes in the price of global crude oil.  However, the price paid by oil companies makes up 51% of the retail price in case of petrol, and 61% in the case of diesel (Table 1).  The break-up of retail prices of petrol and diesel in Delhi, as on September 24, 2018, shows that over 45% of the retail price of petrol comprises central and states taxes.  In the case of diesel, this is close to 36%.

At present, the central government has the power to tax the production of petroleum products, while states have the power to tax their sale.  The central government levies an excise duty of Rs 19.5/litre on petrol and Rs 15.3/litre on diesel.  These make up 24% and 21% of the retail prices of petrol and diesel, respectively.

Table 1

While excise duty rates are uniform across the country, states levy sales tax/value added tax (VAT), the rates of which differ across states.  The figure below shows the different tax rates levied by states on petrol and diesel, which results in their varying retail prices across the country.  For instance, the tax rates levied by states on petrol ranges from 17% in Goa to 39% in Maharashtra.

Effective Sales Tax

Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product.  This implies that while the excise duty component of the price structure is fixed, the sales tax component is charged as a proportion of the price paid by oil companies, which in turn depends on the global crude oil price.  With the recent increase in the global prices, and subsequently the retail prices, some states such as Rajasthan, Andhra Pradesh, West Bengal, and Karnataka have announced tax rate cuts.

How have retail prices in India changed vis-à-vis the global crude oil price?

India’s dependence on imports for consumption of petroleum products has increased over the years.  For instance, in 1998-99, net imports were 69% of the total consumption, which increased to 93% in 2017-18.  Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products.  The following figures show the trend in price of global crude oil and retail price of petrol and diesel in India, over the last six years.

Petrol

Diesel

The global price of crude oil (Indian basket) decreased from USD 112/barrel in September 2012 to USD 28/barrel in January 2016.  Though the global price dropped by 75% during this period, retail prices of petrol and diesel in India decreased only by 13% and 5%, respectively.  This disparity in decrease of global and Indian retail prices was because of increase in taxes levied on petrol and diesel, which nullified the benefit of the sharp decline in the global price.  Between October 2014and June 2016, the excise duty on petrol increased from Rs 11.02/litre to Rs 21.48/litre.  In the same period, the excise duty on diesel increased from Rs 5.11/litre to Rs 17.33/litre.

Over the years, the central government has used taxes to prevent sharp fluctuations in the retail price of diesel and petrol.  For instance, in the past, when global crude oil price has increased, duties have been cut.  Since January 2016, the global crude oil price has increased by 158% from USD 28/barrel to USD 73/barrel in August 2018.  However, during this period, excise duty has been reduced only once by Rs 2/litre in October 2017.  While the central government has not signalled any excise duty cut so far, it remains to be seen if any rate cut will happen in case the global crude oil price rises further.  With US economic sanctions on Iran coming into effect on November 4, 2018, India may face a shortfall in supply since Iran is India’s third largest oil supplier.  Moreover, Organization of Petroleum Exporting Countries (OPEC) and Russia have not indicated any increase in supply from their side yet to offset the possible effect of sanctions.  As a result, in a scenario with no tax rate cut, this could increase the retail prices of petrol and diesel even further.

How has the revenue generated from taxing petroleum products changed over the years?

As a result of successive increases in excise duty between November 2014 and January 2016, the year-on-year growth rate of excise duty collections increased from 27% in 2014-15 to 80% in 2015-16.  In comparison, the growth rate of sales tax collections was 6% in 2014-15 and 4% in 2015-16.  The figure below shows the tax collections from the levy of excise duty and sales tax on petroleum products.  From 2011-12 to 2017-18, excise duty and sales tax collections grew annually at a rate of 22% and 11%, respectively.

Tax revenue

How is this revenue shared between centre and states?

Though central taxes are levied by the centre, it gets only 58% of the revenue from the levy of these taxes.  The rest 42% is devolved to the states as per the recommendations of the 14th Finance Commission.  However, excise duty levied on petrol and diesel consists of two broad components – (i) excise duty component, and (ii) road and infrastructure cess.  Of this, only the revenue generated from the excise duty component is devolved to states.  Revenue generated by the centre from any cess is not devolved to states.

The cess component was increased by Rs 2/litre to Rs 8/litre in the Union Budget 2018-19.  However, this was done by reducing the excise duty component by the same amount, so as to keep the overall rate the same.  Essentially this provision shifted the revenue of Rs 2/litre of petrol and diesel from states’ divisible pool of taxes to the cess revenue, which is entirely with the centre.  This cess revenue is earmarked for financing infrastructure projects.

At present, of the Rs 19.5/litre excise duty levied on petrol, Rs 11.5/litre is the duty component, and Rs 8/litre is the cess component.  Therefore, accounting for 42% share of states in the duty component, centre effectively gets a revenue of Rs 14.7/litre, while states get Rs 4.8/litre.  Similarly, excise duty of Rs 15.3/litre levied on diesel consists of a cess component of Rs 8/litre.  Thus, excise duty on diesel effectively generates revenue of Rs 12.2/litre for the centre and Rs 3.1/litre for states.

Mr. Ramnath Kovind completes his tenure as President in July.  With the Election Commission of India expected to notify the election dates this week, we look at how India will elect its next President.  

As the Head of the State, the President is a key part of Parliament.  The President calls the two Houses of Parliament into session on the advice of the Council of Ministers.  A Bill passed by the Lok Sabha and Rajya Sabha does not become a law unless assented to by the President.  Further, when Parliament is not in session, the President holds the power to sign a law with immediate effect through an Ordinance.

Who elects the President?

The manner of election of the President is provided in Article 55 of the Constitution.  Members of Parliament and Members of Legislative Assemblies (MPs and MLAs) including elected representatives from the Union Territories (UTs) of Delhi and Puducherry form the electoral college, which elects the President.  At least 50 elected representatives must propose a candidate, who must then be seconded by 50 other electors to run for the President's office.  Members of Legislative Councils and the 12 nominated members of Rajya Sabha do not participate in the voting process.

The history behind having proposers and seconders 
The requirement of having a certain number of electors propose a candidate was introduced after the experience of the first five Presidential elections.  It was common then for several candidates to put themselves up for election when they did not have a remote chance of getting elected.  In the 1967 Presidential elections, 17 candidates contested, but nine of them did not win a single vote.  This repeated again in the 1969 elections, when out of 15 candidates, five did not secure any votes.

To discourage the practice, candidates had to secure at least 10 proposers and seconders each to contest the elections from the 1974 election onwards.  A compulsory security deposit of Rs 2,500 was also introduced.  The changes were brought in through an amendment to the Presidential and Vice-Presidential Act, 1952

In 1997, the Act was further amended to increase the security deposit to Rs 15,000 and the minimum number of proposers and seconders to 50 each.


How are the votes calculated?

The Presidential election uses a special voting to tally the votes.  A different voting weightage is assigned to an MP and an MLA.  The value of each MLA's vote is determined based on the population of their state and the number of MLAs.  For instance, an MLA from UP has a value of 208 while an MLA from Sikkim has 7 (see Table 1).  Due to a Constitutional Amendment passed in 2002, the population of the state as per the 1971 census is taken for the calculation.

The value of an MP's vote is the sum of all votes of MLAs across the country divided by the number of elected MPs.  

How will the numbers look in 2022?

In the 2017 Presidential elections, electors from 31 states and the UTs of Delhi and Puducherry participated. However, in 2019, with the Jammu and Kashmir (J&K) Reorganization Act, the number of states were reduced to 30. The J&K Assembly was dissolved as per the Act and a new legislature for the UT of J&K is yet to be reconstituted. UTs with legislatures were not originally part of the electoral college for the election of the President. The Constitution was amended in 1992 to specifically include the UTs of Delhi and Puducherry. Note that for MLAs from J&K to participate in future Presidential elections, a similar Constitutional amendment would be required to be passed by Parliament.

Based on the assumption that J&K is not included in the 2022 Presidential election, the total number of votes of MLAs in 2022 elections will have to be adjusted.  The 87 Jammu and Kashmir MLAs must be removed from the total number of MLAs of 4,120.  Jammu and Kashmir’s contributing vote share of 6,264 must also be reduced from the total vote share of 549,495.  Adjusting for these changes, 4,033 MLAs will participate in the 2022 elections and the combined vote share of all MLAs will add up to 543,231.

Table 1: The value of votes of elected MLAs of different states at the 2017 Presidential Election

Name of State

Number of Assembly seats

Population (1971 Census)

Value of vote of each MLA

Total value of votes for the state (B x D)

A

B

C

D

E

Andhra Pradesh

175

2,78,00,586

159

27,825

Arunachal Pradesh

60

4,67,511

8

480

Assam

126

1,46,25,152

116

14,616

Bihar

243

4,21,26,236

173

42,039

Chhattisgarh

90

1,16,37,494

129

11,610

Goa

40

7,95,120

20

800

Gujarat

182

2,66,97,475

147

26,754

Haryana

90

1,00,36,808

112

10,080

Himachal Pradesh

68

34,60,434

51

3,468

Jammu and Kashmir

87

63,00,000

72

6,264

Jharkhand

81

1,42,27,133

176

14,256

Karnataka

224

2,92,99,014

131

29,344

Kerala

140

2,13,47,375

152

21,280

Madhya Pradesh

230

3,00,16,625

131

30,130

Maharashtra

288

5,04,12,235

175

50,400

Manipur

60

10,72,753

18

1,080

Meghalaya

60

10,11,699

17

1,020

Mizoram

40

3,32,390

8

320

Nagaland

60

5,16,449

9

540

Odisha

147

2,19,44,615

149

21,903

Punjab

117

1,35,51,060

116

13,572

Rajasthan

200

2,57,65,806

129

25,800

Sikkim

32

2,09,843

7

224

Tamil Nadu

234

4,11,99,168

176

41,184

Telangana

119

1,57,02,122

132

15,708

Tripura

60

15,56,342

26

1,560

Uttarakhand

70

44,91,239

64

4,480

Uttar Pradesh

403

8,38,49,905

208

83,824

West Bengal

294

4,43,12,011

151

44,394

NCT of Delhi

70

40,65,698

58

4,060

Puducherry

30

4,71,707

16

480

Total

4,120

54,93,02,005

 

5,49,495

Source: Election Commission of India (2017); PRS.

The value of an MP’s vote correspondingly will change from 708 in 2017 to 700 in 2022. 

Value of one MP's vote =   Total value of all votes of MLAs      =   543231     =    700 
                                              Total number of elected MPs                 776

Note that the value of an MP’s vote is rounded off to the closest whole number. This brings the combined value of the votes of all MPs to 543,200 (700 x 776). 

What is the number of votes required to win?

The voting for the Presidential elections is done through the system of single transferable vote. In this system, electors rank the candidates in the order of their preference. The winning candidate must secure more than half of the total value of valid votes to win the election. This is known as the quota. 

Assuming that each elector casts his vote and that each vote is valid:

Quota = Total value of MP’s votes + Total value of MLA’s votes + 1                                                        
                                                        2

= 543200 + 543231 +1     =   1086431 +1     =    543,216 
                2                                   2

The anti-defection law which disallows MPs from crossing the party line does not apply to the Presidential election. This means that the MPs and MLAs can keep their ballot secret.  

The counting of votes takes place in rounds. In Round 1, only the first preference marked on each ballot is counted. If any of the candidates secures the quota at this stage, he or she is declared the winner. If no candidate secures the quota in the first round, then another round of counting takes place. In this round, the votes cast to the candidate who secures the least number of votes in Round 1 are transferred. This means that these votes are now added to the second preference candidate marked on each ballot. This process is repeated till only one candidate remains. Note that it is not compulsory for an elector to mark his preference for all candidates. If no second preference is marked, then the ballots are treated as exhausted ballots in Round 2 and are not counted further.  

The fifth Presidential election which elected Mr. VV Giri is the only instance when a candidate did not secure the quota in the first round.  The second preference votes were then evaluated and Mr. Giri secured 4,20,077 of the 8,36,337 votes and was declared the President.

The only President of India to win unopposed 
India’s sixth President, Mr. Neelam Sanjiva Reddy who served from 1977 to 1982 was the only President to be elected unopposed.  37 candidates had filed their nominations for the 1977 elections, however on scrutiny, the nomination papers of 36 candidates were rejected by the Returning Officer and Mr. Reddy was the only candidate standing.