"Central government saves ₹15 on every litre of petrol due to fall in crude oil prices". Thus VAT on petrol was increased by 5% and on diesel by 4.1%.
The country is particularly at risk from stronger global crude oil prices because it is the third biggest importer of the commodity, buying about 80 percent of its oil needs.
Meanwhile, the Union Minister Nitin Gadkari said that any move to subsidise petrol and diesel prices could have an adverse efffect on welfare schemes being planned and implemented by the Central government.
While the retail prices have gone up, the prices at which the fuel is sold to petrol pump dealers have come down drastically since 2013.
"The government is keen that instead of having an ad hoc measure it may be desirable to have a long-term view which addresses not only the volatility but also takes care of the unnecessary ambiguity arising out of frequent ups and downs", Law Minister Ravi Shankar Prasad told a news conference. The prices came into effect at 6 am today.
As the prices of petrol and diesel continued to soar high on Tuesday, the public requested the government to reduce the price as it's affecting their budget.
The worse is, however, yet to come since worldwide oil prices are likely to rise further. It is possible to cut up to ₹25 per litre, but the government will not. "They will cheat the people by cutting price by Re 1 or Rs 2 per litre of petrol", he said over Twitter.
Higher prices are denting popularity of the ruling Bharatiya Janata Party, which face polls in key states later this year and a nationwide election in early 2019.
Opposition leaders have criticised the government for failing to rein in rising fuel prices, a politically-sensitive issue in one of the world's biggest economies. There are many states where Value-Added Tax is higher than what it is in Gujarat today.
As per Indian Oil Corporation's price build-up data for fuels, the total tax component charged from consumers stands at 52 per cent for petrol and 42 per cent for diesel.
According to the finance ministry's revenue collection estimates, the central government collects more than Rs. 2.579 lakh crore by levying taxes on petroleum products.
Presently, petrol and diesel prices hike is mainly in the Delhi, Mumbai and Chennai cities. "Though VAT on fuel in many states is higher than Gujarat, these states have not reduced this tax like we had done", Patel, who also handles Finance portfolio, said. We are trying to build a consensus in GST Council on bringing petroleum under GST.