The reason isn’t far to seek. India’s tax component in a litre of fuel is one of the world’s highest.
The hike in petrol and diesel prices at pumps since the daily dynamic pricing mechanism started in June will continue, the petroleum minister has said. The price at pumps is more complicated than mere computing of the landed, refining and marketing cost of a crude oil-importing nation. But the public angst at rising prices is justifiable as fuel costs in India are at least 60 per cent more than in Pakistan and other South Asian nations like Sri Lanka, Bangladesh and Nepal. Also, prices shot up sharply in the past three months, with petrol costlier by Rs 5 per litre and diesel by over Rs 4/litre in terms of Delhi prices. Where the current calculations behind fuel pricing seem distorted is in comparison to four years ago when global crude prices were at an astronomical high of $108 per barrel, and the rupee around 62 to the US dollar, when pump prices were only marginally higher than now.
The reason isn’t far to seek. India’s tax component in a litre of fuel is one of the world’s highest. At a time when crude prices were tumbling earlier this year, the Centre didn’t pass on all benefits to consumers, but instead hiked excise. With every Indian family a customer either directly or indirectly, the impact of fuel prices is an inescapable phenomenon in a developing economy. While it’s true subsidies, as in the extreme case of diesel that existed till some years ago, distort the market, a case can also be made for merited subsidies. The clamour for the government to absorb some of the price rise is not misplaced, even if the rise is temporary in the dynamics of international oil prices. However, India has tried to get off the subsidy path, and is determined to do so even after not using the huge cushion tumbling oil prices had afforded the economy in reining in the fiscal deficit.
While tinkering with the current oil prices’ mechanism is difficult, both the Centre and states need the revenue as the all macroeconomic signs indicate the economy is floundering. India’s industrial production is down, true collections from GST are yet to be computed, exports are not rising as the world economy is yet to fully recover from the 2008 hit, while half the country is hit by floods and other parts are suffering from extreme drought. We are in a phase of the economic cycle that is unforgiving, as rising unemployment would well suggest. Not even the tweaked GDP growth numbers are comfortable enough at a time when the push for growth has to come from internal demand. It’s fair to say the government is on a cleft stick thanks to the economy and oil pricing reform is hardly a priority. So the people must pay.