This post is pursuant to the discussion on population stabilization being held in Parliament currently. India is the second most populous country in the world, sustaining 16.7% of the world's population on 2.4% of the world's surface area. The population of the country has increased from 238 million in 1901 to 1,029 million in 2001. Even now, India continues to add about 26 million people per year. This is because more than 50% of the population is in the reproductive age group. India launched a family planning programme in 1952. Though the birth rate started decreasing, it was accompanied by a sharp decrease in death rate, leading to an overall increase in population. In 1976, the first National Population Policy was formulated and tabled in Parliament. However, the statement was neither discussed nor adopted. The National Health Policy was then designed in 1983. It stressed the need for ‘securing the small family norm, through voluntary efforts and moving towards the goal of population stabilization’. While adopting the Health Policy, Parliament emphasized the need for a separate National Population Policy. This was followed by the National Population Policy in 2000. The immediate objective of the policy was to address the unmet needs for contraception, health care infrastructure and personnel, and to provide integrated service delivery for basic reproductive and child health care. The medium-term objective was to bring TFR (Total Fertility Rate - the average number of children a woman bears over her lifetime) to replacement levels by 2010. In the long term, it targeted a stable population by 2045, ‘at a level consistent with the requirements of sustainable economic growth, social development, and environmental protection.’ (See http://populationcommission.nic.in/npp.htm) Total Fertility Rate India’s TFR was around 6.1 in 1961. This meant that an average woman bore over 6 children during her lifetime. Over the years, there has been a noticeable decrease in this figure. The latest National Family Health Survey (NFHS III, 2005-06) puts it at 2.7. TFR is almost one child higher in rural areas (3.0) than in urban areas (2.1). TFR also varies widely across states. The states of Andhra Pradesh, Goa, Himachal Pradesh, Karnataka, Kerala, Maharashtra, Punjab, Sikkim and Tamil Nadu have reached a TFR of 2.1 or less. However, several other states like UP, Bihar, MP, Rajasthan, Orissa, Uttaranchal, Jharkhand and Chhattisgarh, where over 40% of the population lives, TFR is still high. (See http://www.jsk.gov.in/total_fertility_rate.asp) Factors that affect population growth The overarching factor that affects population growth is low socio-economic development. For example, Uttar Pradesh has a literacy rate of 56%; only 14% of the women receive complete antenatal care. Uttar Pradesh records an average of four children per couple. In contrast, in Kerala almost every person is literate and almost every woman receives antenatal care. Kerala records an average of two children per couple. Infant mortality In 1961, the Infant Mortality Rate (IMR), deaths of infants per 1000 live births, was 115. The current all India average is much lower at 57. However, in most developed countries this figure is less than 5. IMR is the lowest at 15 in Kerala and the highest at 73 in Uttar Pradesh. Empirical correlations suggest that high IMR leads to greater desire for children. Early marriage Nationwide almost 43% of married women aged 20-24 were married before the age of 18. This figure is as high as 68% in Bihar. Not only does early marriage increase the likelihood of more children, it also puts the woman's health at risk. Level of education Fertility usually declines with increase in education levels of women. Use of contraceptives According to NFHS III (2005-06), only 56% of currently married women use some method of family planning in India. A majority of them (37%) have adopted permanent methods like sterilization. Other socio-economic factors The desire for larger families particularly preference for a male child also leads to higher birth rates. It is estimated that preference for a male child and high infant mortality together account for 20% of the total births in the country. Government initiatives The National Population Policy 2000 gave a focused approach to the problem of population stabilization. Following the policy, the government also enacted the Constitution (84th Amendment) Act, 2002. This Amendment extended the freeze on the state-wise allocation of seats in the Lok Sabha and the Rajya Sabha to 2026. It was expected that this would serve ‘as a motivational measure, in order to enable state governments to fearlessly and effectively pursue the agenda for population stabilization contained in the National Population Policy, 2000’. The National Commission on Population was formed in the year 2000. The Commission, chaired by the Prime Minister, has the mandate to review, monitor and give directions for implementation of the National Population Policy. The Jansankhya Sthirata Kosh (National Population Stabilization Fund) was setup as an autonomous society of the Ministry of Health and Family Welfare in 2005. Its broad mandate is to undertake activities aimed at achieving population stabilization. Programmes like the National Rural Health Mission, Janani Suraksha Yojana, ICDS (Integrated Child Development Services) etc. have also been launched by the government to tackle the healthcare needs of people. This is also expected to contribute to population stabilization. Free contraceptives are also being provided. In addition, monetary incentives are given to couples undertaking permanent family planning methods like vasectomy and tubectomy. Nutritional and educational problems are being targeted through programs like the mid-day meal scheme and the recently enacted Right to Education. ---------------- For more details on the issue, see the website of the National Population Stabilization Fund (http://www.jsk.gov.in/) Sources: Registrar General, India National Population Stabilization Fund National Commission on Population National Family Health Survey III (2005-06)
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.
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.
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.
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.
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.
