India also has the problem of a weak rupee against a strengthening dollar which makes oil imports much more expensive.
The rise in petrol and diesel prices which is dictated by the oil producing countries, must be seen as something permanent and therefore the most rational answer to this situation is to lessen the dependence on oil as a source of energy. It is estimated that a rise of $10 per barrel increase in oil price increases India’s import bill by around $8 billion, not to mention the adverse impact on the GDP and the current account deficit. India is a net importer of oil, primarily from Saudi Arabia and Iran, and imports nearly 80 per cent of the country’s oil requirements.
India also has the problem of a weak rupee against a strengthening dollar which makes oil imports much more expensive. The rupee has depreciated by Rs 2.5 in a month and has been depreciating since the beginning of this year. So the Indian consumer has been hit by a double whammy, namely, rising crude prices and a falling rupee. The Indian rupee has been the worst performing currency among the emerging market currencies.
The consumer pays much more for the fuel because of the various taxes imposed on the fuel by the Centre and states. For instance, the Centre mopped up more Rs 2,42,000 crores in 2016-17 from tax on fuel from Rs 99,000 crores in 2014-15. Petrol is a milch cow for the government to shore up its revenues. In Maharashtra for instance taxes account for half the cost of the fuel. It had recently made a miniscule cut but it is not enough.
In the short-term, the government needs to increase the production of oil in the country and accelerate the creation of alternative sources of energy. For instance, it could expedite the growth of solar and wind energy, especially since the cost of solar power and wind power is now cheaper than that of coal-based power. It is a source of concern that the country’s crude oil output has fallen for the sixth straight year in 2017-18 to 35.7 million metric tonnes. It makes one wonder whether the ministry of petroleum’s planning and analysis cell is sleeping on its job. Since the situation is serious the Prime Minister needs to look into this. It has a cascading effect on several aspects of the country.
The Prime Minister needs to ask his minister why the production of crude oil has declined under his watch? It is intriguing that the petroleum minister concerned has remained silent on the subject and finance minister Arun Jaitley, who has nothing to do with oil production, comments that rising oil prices is a temporary situation. While it may be temporary for him it is still burning a hole in the pocket of the consumer.
There is a demand for bringing oil under the GST so that there is one uniform price throughout the country. But the states are disagreeable to this as it is their source of a robust income.