Indian states raise fuel taxes despite slumping demand

India's Delhi and Tamil Nadu states have increased taxes on diesel and gasoline in a further blow to the country's oil product demand.

The states, both major consumption centres for transport fuel, raised the taxes to compensate for a loss of government revenue amid India's Covid-19 lockdown.

Delhi has raised taxes on diesel and gasoline to 30pc, from around 17pc and 27pc respectively. Diesel prices have increased by 11pc to 69.39 rupees/l (90¢/l) as a result, while gasoline prices rise by 2pc to Rs71.26/l.

The southern state of Tamil Nadu has increased gasoline prices by Rs3.25/l or around 5pc and raised diesel prices by Rs2.50/l or 4pc, according to the oil ministry. Transport fuels do not come under India's national goods and services tax (GST), giving states the power to raise local rates.

The tax increases are another blow to consumers, which are yet to see much benefit from the slump in international oil prices. Gasoline and diesel prices in Delhi are largely unchanged from levels of Rs75/l and Rs68/l respectively on 1 January, despite Brent crude having fallen by almost 60pc over the period.

State-controlled Indian refiners have frozen gasoline and diesel prices since 16 March, despite being supposed to set rates based on international prices after the government lifted price controls in recent years. But the price policy is optional and refiners have the freedom to keep rates unchanged.

India's central and state governments typically increase taxes whenever oil prices fall to support their revenues. But the increase in pump prices, coming amid an anticipated contraction in economic output because of the coronavirus outbreak, may further hurt fuel demand. State-controlled refiners IOC, Hindustan Petroleum and Bharat Petroleum said demand for diesel, gasoline and jet fuel fell by around 57pc, 61pc and 92pc respectively in April from a year earlier.

India has extended its Covid-19 lockdown to 17 May, after initially imposing it on 25 March. Coronavirus cases surged by a record 3,900 in the last 24 hours to around 46,500, with 1,573 deaths.

By S Dinakar