Age Debate: Do we go for short-term gain?

The Asian Age.

Opinion, The Age Debate

With fuel prices rising, the government needs to cut its taxes to give citizens relief.

Petrol and diesel prices are rising due to an increase in the price of crude oil.

People must be given some relief
Jaiveer Shergill

The protest against fuel price hike was the alpha and omega of Narendra Modi’s election campaign in 2014. He vociferously criticised the UPA government for “failing” to control the prices of petrol and diesel without then realising that crude oil prices were at their peak, at more than $100 per barrel. Today, when crude oil prices are below $78 per barrel, petrol and diesel prices are singeing the budgets of ordinary people, farmers and the middle class. Soaring diesel prices of Rs 72.21 per litre is impacting farmers’ lifeline, besides having a cascading effect on the prices of food products and other essential products. For all practical purposes, the consistent fuel price rise is making the budgets of all households bleed. Despite the source of import being the same, petrol and diesel are being sold at a much higher price in India, compared to neighbouring countries like Nepal, Sri Lanka, Pakistan and Bangladesh.

The Narendra Modi government says since fuel prices in India are in sync with international oil market; the prices of petrol and diesel are increasing with an increase in international crude prices. But this is again a half-truth. The fact is post-May 2014, international crude prices have come down. Consumers in India were paying more than Rs 70 even when international crude price was below $50 per barrel. On September 14, 2013, the price of petrel per litre was Rs 76.13 and the price of international crude oil was $110 per barrel and on May 22, 2018, the price of petrol per litre was Rs 84.40 whereas international crude price was $77.43 per barrel. This is the difference which defies the principles of economics and the understanding of a common man. The answer lies in the policies and politics of the Modi government. The Central excise duty has been hiked 12 times since the BJP came to power. The BJP-led NDA government earned Rs 9,16,038 crores from Central excise duty on petrol and diesel till December 2017, and the figures may be over Rs 10 lakh crores by now. A consumer is paying Rs 41.32 as taxes for a litre of petrol and Rs 35.38 for a litre of diesel. By frequently increasing the duty on petroleum products, the Centre has violated the spirit of price deregulation. When the government decided to deregulate the prices of petrol and diesel, the underlying assumption was that consumers will suffer and fend for themselves in times of price upswings in the global market and they will benefit from price moderation. If the consumers will not benefit in good times, why should they be burdened in bad times? They are feeling cheated now.

The international crude price is unlikely to subside in the near future and the depreciation of the rupee against the dollar will make things harder. The government appears to be clueless on how to deal with depreciation. Therefore, some short-term and long-term interventions need to be taken to give relief against the stiff rise in petrol and diesel prices. As a short-term measure, the government should immediately reduce the excise duty on petrol and diesel. The long-term solution is to include petroleum products under GST.

The BJP boasts about its electoral dominance in a majority of Indian states, its high time they put this to good use by reducing VAT in BJP-ruled states. and it is high time that this government gets off its high horse and reduces taxes on petroleum products to reduce the burden on the common man.

The writer is national media panellist, Indian National Congress, and a Supreme Court lawyer

Govt seized of issue, working out
Harish Khurana

I believe that Narendra Modi government is facing its toughest challenge ever since it came to power on May 26, 2014, and that too from an external factor. Petrol and diesel prices are rising due to an increase in the price of crude oil.

But before blaming the government, we must understand a few facts. Given the fact that India is the world’s third largest oil importer, any hike in the global market is bound to impact India’s oil import bill and trade deficit. The oil import has risen by over 25 per cent in the current year, to $109 billion as compared to what it was a year ago.

The spike in oil prices is due to a combination of factors such as US President Donald Trump pulling the US out of a 2015 historic accord with energy-rich Iran, Opec and Russia cutting supplies, falling production in Venezuela and geopolitical tensions.

The government is well aware of the existing crisis, and it won’t let the hike go any further. There are two reasons for this. First, it directly enters our price indices and a 10 per cent increase in crude oil prices increases the wholesale price index (WPI) by around 0.75 per cent (direct and indirect) and the consumer price index (CPI) by around 0.4-0.5 per cent. As this keeps going up, the CPI can cross the five per cent danger mark and once it is past six per cent, there will be an aggressive rate hike from the Reserve Bank of India (RBI).

This can affect growth at a time when industry is looking to expand in case demand picks up. We may get back to the pre-2014 days when high inflation and high interest rates coexisted.

Second, a high crude oil price will put a pressure on the trade deficit and the current account deficit (CAD) and finally the rupee will fall sharply adding to inflationary pressures. This can become a more generalised problem. A cut in oil prices looked imminent on Tuesday with the government busy crunching numbers for reducing the excise duty on fuel and looking at alternatives to soften the blow.

An indication of the government’s desire to scale down the relentless rise in pump prices came from none other than BJP president Amit Shah when he said it was a matter of concern for the government and will be addressed shortly.

The government has limited options. The first option is to give subsidy to OMCs but after deregularisation of petrol and diesel, which started during UPA rule, the subsidy can be capped only to `25,000 crores.

The second option is that both the Central and the state governments cut down excise and VAT. The Opposition too is demanding these cuts with the plea that during UPA rule crude oil was around $100 while now it is $50-60.

The Opposition is alleging that the government is not passing on the benefit of reduced crude oil to consumers, but they forget that the subsidy to OMCs was touching a record high at their time resulting in an alarming fiscal deficit.

Today excise has been shared; 40 per cent goes to the state and balance is spent in building infrastructure and other development projects. So reducing rates means compromising with development too — a one-rupee reduction means the loss of Rs13,000 crores.

The government is working at multiple levels to find out a solution of this problem. But it is high time that we find alternatives to petroleum products.

The writer is a Delhi BJP spokesperson