From Cheap Crude to Costly Fuel: UPA vs NDA — How Taxation Changed India's Petrol and Diesel Burden.....

Introduction: The Real Story Behind Rising Fuel Prices

The increase in petrol and diesel prices in India cannot be understood merely by comparing international crude oil prices. The taxation policies of successive governments have played an equally important role in determining what consumers ultimately pay at petrol pumps. A comparison between the United Progressive Alliance (UPA), which governed from 2004 to 2014, and the National Democratic Alliance (NDA), which assumed office in 2014, reveals an important difference in the composition of fuel prices. During the UPA period, petrol and diesel prices increased substantially, partly because of rising international crude prices and the gradual adjustment of domestic prices. However, during the NDA period, particularly between 2014 and 2021, increases in central excise duties and state-level value-added tax (VAT), together with additional cesses and surcharges, significantly increased the tax component of retail fuel prices. The distinction is important because a higher retail price caused by expensive crude oil is economically different from one resulting from higher government taxation. The former reflects international supply conditions, whereas the latter represents a domestic fiscal decision that directly affects household purchasing power, transportation costs and inflation.

Petrol and Diesel Prices: Comparing the Two Regimes

Delhi provides a useful common reference point because historical retail prices and official price build-ups are available for comparison. At the beginning of the UPA period in April 2004, petrol cost approximately ₹33.71 per litre and diesel ₹21.74. By May 2014, towards the end of the UPA government, petrol had reached approximately ₹71.41 and diesel ₹56.71 per litre. This represented increases of approximately 112% in petrol and 161% in diesel over the decade. During the NDA period, petrol was approximately ₹71.41 per litre in May 2014 and reached ₹94.72 by June 2024, an increase of approximately 33%. Diesel increased from approximately ₹56.71 to ₹87.62 over the same period, representing an increase of approximately 54%. These comparisons show that fuel prices increased under both governments, although the percentage increase was considerably higher during the UPA decade, particularly for diesel. However, this comparison alone does not establish which government imposed the greater tax burden. For that, the individual components of taxation must be examined.

Central Excise: The Major Difference in Taxation Policy

The most significant distinction emerges from central excise taxation. In the UPA period, central excise on petrol was approximately ₹12.12 per litre in April 2004 and ₹9.48 in May 2014, reflecting the reduction in the effective duty by the end of its tenure. On diesel, central excise was approximately ₹3.65 per litre in April 2004 and ₹3.56 in 2014. These figures included the applicable additional duties and education cesses. Under the NDA, petrol excise increased from approximately ₹9.48 per litre in July 2014 to ₹21.48 by November 2016. It subsequently reached ₹32.98 in May 2020 before being reduced to ₹19.90 in May 2022. Diesel excise similarly increased from approximately ₹3.56 in 2014 to ₹13.83 by 2019 and reached substantially higher levels during the pandemic, before being reduced. These changes demonstrate that the NDA substantially increased central taxation on petroleum products, particularly during 2020, when international crude prices had fallen sharply. The government subsequently reduced duties in November 2021 and May 2022, but the tax structure remained considerably different from the one inherited in 2014.

VAT, Cesses and the Total Tax Component

Central excise is only one component of fuel taxation. State governments impose VAT, while additional central duties and cesses have also contributed to the final retail price. The Delhi petrol price build-up illustrates the difference. In May 2014, central excise represented approximately 13.3% of the retail price, while central excise together with Delhi VAT accounted for approximately 29.9%. By June 2024, central excise alone represented approximately 21% of the petrol retail price, while central excise and Delhi VAT together accounted for approximately 37.3%. Thus, the combined tax share increased by approximately 7.4 percentage points. The increase was particularly significant during the NDA's first years, when excise duties were raised repeatedly. Nevertheless, it is important to recognise that VAT is determined by individual state governments, not exclusively by the Union government. Similarly, customs duties affect the upstream cost of imported petroleum products. Therefore, a comprehensive comparison must include central excise, special and additional excise duties, cesses, customs duties and state VAT rather than attributing every increase to one government.

Tax Revenue as a Percentage of GDP: UPA versus NDA

The broader taxation record provides another perspective on the fiscal policies of both governments. According to Reserve Bank of India data, combined Centre and state tax collections increased from approximately ₹4.85 lakh crore in 2004–05 to ₹18.47 lakh crore in 2013–14 during the UPA decade. Against nominal GDP of approximately ₹31.86 lakh crore and ₹112.34 lakh crore, respectively, the combined tax-to-GDP ratio increased from approximately 15.2% to 16.4%. During the NDA period, combined tax collections increased from approximately ₹20.21 lakh crore in 2014–15 to ₹54.08 lakh crore in 2023–24. Against nominal GDP of approximately ₹124.68 lakh crore and ₹295.36 lakh crore, respectively, the corresponding ratio increased from approximately 16.2% to 18.3%. Therefore, the broad tax-to-GDP ratio increased under both governments, but the increase was approximately 1.2 percentage points during the UPA period and 2.1 percentage points during the NDA period. These are indicative comparisons using RBI combined tax collections and the corresponding nominal GDP series.

Understanding the Tax-to-Per-Capita-GDP Ratio

An important distinction needs to be made when discussing taxation relative to individual income. The tax-to-per-capita-GDP ratio is mathematically identical to the overall tax-to-GDP ratio, provided the same population denominator is used. This is because dividing total tax revenue by population and dividing GDP by population produces the same ratio as dividing total tax revenue directly by GDP. Consequently, when the combined tax-to-GDP ratio rises from 15.2% to 18.3%, it also means that the government's tax collection per person has increased relative to GDP per person. However, this does not mean that every individual pays that proportion of their income in taxes. The actual burden differs across income groups, consumption patterns and tax categories. Indirect taxes, including fuel taxes, are particularly important because they affect consumers irrespective of whether they fall within the income-tax-paying population. Their economic burden can therefore be proportionately greater for lower-income households, which spend a larger share of their income on essential consumption and transportation.

The Fiscal Implications: Revenue versus Purchasing Power

Petroleum taxation has also become an important source of government revenue. According to the Parliamentary analysis of petroleum taxation, the combined contribution of petroleum products to central and state tax revenues increased from approximately ₹2.87 lakh crore in 2014–15 to ₹7.14 lakh crore in 2021–22, before declining to approximately ₹6.69 lakh crore in 2023–24, based on provisional figures. This demonstrates how fuel taxation became an important fiscal instrument during the NDA period. However, higher petroleum taxation has consequences beyond government revenue. Transportation costs enter the production and distribution costs of agricultural commodities, manufactured goods and services. Consequently, higher fuel taxes can contribute to cost-push inflation, reduce disposable household income and increase the cost of doing business. The government must therefore balance revenue mobilisation against the wider economic consequences of taxing an essential input.

Conclusion: The Difference Between Rising Prices and Rising Taxation

The comparison between the UPA and NDA reveals two different dimensions of India's fuel-price history. The UPA decade experienced substantially higher percentage increases in retail petrol and diesel prices, largely against the background of rising international crude oil prices and regulated domestic pricing. The NDA decade, particularly its initial years and the pandemic period, witnessed a significant increase in the central excise component, while the combined tax share of petrol also increased between 2014 and 2024. Meanwhile, the overall tax-to-GDP ratio increased more during the NDA period in the selected beginning-and-ending-year comparison. Neither retail price increases nor tax-to-GDP ratios alone provide a complete assessment of economic performance. Nevertheless, the evidence indicates that the NDA relied more heavily on petroleum taxation as a revenue instrument, particularly when crude prices were relatively low. The larger policy question is whether governments should continue to use essential fuels as a convenient source of revenue or gradually shift towards a broader, more progressive tax base. Ultimately, the real measure of taxation policy should not simply be how much revenue the government collects, but how much purchasing power remains with citizens after paying taxes on essential goods and services.

Methodological note: The fuel-price comparison uses Delhi as a common reference market. The tax-to-GDP calculations use combined Centre and state tax revenue, rather than petroleum taxes alone. The 2023–24 figures are historical estimates and can change with national-account revisions.