May 31, 2023

Rising Fuel Prices: Blaming Previous Governments Will Not Do

By Sunil Garodia
First publised on 2021-02-19 08:34:59

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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

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It is surprising that instead of lowering excise duty and Central taxes and prodding states to lower VAT on petroleum products to offset the unprecedented rise in fuel prices, Prime Minister Modi chose to blame previous governments for the state of affairs. His contention was that fuel prices are rising as previous governments did nothing to reduce India's dependence on fossil fuels (read: did not initiate policy measures to move towards electric or other vehicles). But that is a specious argument.

Prices of petrol and diesel are much lower than India in most countries in the world, when converted to Indian currency. They are much lower in neighbouring countries too. That is mainly due to the reason that the governments in these countries do not tax such products as heavily as India does. Many publications have published charts showing comparative prices of petrol and diesel across the world (the lead picture shows the Business Today chart) . That certainly proves that Indian oil companies continue to charge an exorbitant rate for these products from consumers mainly due to the fact that excise duty and other taxes form an unnaturally high component of the final price.

Even if were to believe the Prime Minister, do other countries have vehicles running on fuel other than petrol and diesel in enough numbers to justify the low price there? That is obviously not true. What is true is that the government has found a gold mine in petroleum products and continues to tax it heavily, unmindful of the fact that it leads to inflationary pressures and burns a hole in the pockets of the middle class. Transport operators have already started making loud noise and if the trend is not reversed, there will be nationwide strikes. Transport costs will increase for commuting, travelling and transporting goods.

Hence, instead of talking like a politician, the Prime Minister must work like a leader and create a formula through which relief can be provided to consumers. This formula should be a long term one which should account for increase in crude prices in world markets to adjust the taxes proportionately so that the common man is not burdened. Since crude prices do not remain high forever, a short term dip in tax collection through petrol and diesel when prices are high will provide immense relief to the people and will not inconvenience the government much. On the contrary, it can reap the benefits when world crude prices are low, as it had one in the past, by not lowering the prices too much. 

picture courtesy: Business Today