Fuel Prices Hiked for 19th Consecutive Day

Kakali Das

an empty gas station — Photo by sergio souza on Pexels.com

In the last 19 days there have been 19 hikes in fuel prices in India, taking a cumulative increase in the prices of diesel and petrol up to Rs10.01 and 8.5 respectively in Delhi.

Diesel, being the active fuel used in bringing essential goods into our cities breached Rs 80-mark in Delhi.

Every essential commodity we buy – milk, fruits, vegetables and entire grocery items – comes in on the back of a diesel fuelled truck. If the price of Diesel goes up in this shocking fashion, the prices of food will go up as well. This price hiking is linked with global prices – the global price of crude oil in the last 1 year has had tremendous ups and downs.

Prices in between April and May witnessed a massive dip because of a combination of a price war in between Russia and Saudi Arabia. There was a glut in the market followed by the lockdown which resulted in the crashing of price of fuels. The Indian government then increased the taxes on fuel from 6^th of May in order to make up for the difference.

The price of fuel is made up of the prices of crude, government taxes, value-added tax (VAT) and the domestic price. So, in order to bridge that gap our government increased taxes – the highest in the world at 69% now with a lifetime high in Diesel.

Should the government be reducing taxes on fuel based on the global stats? Can the average Indian family withstand a hike in food prices? As higher the price of Diesel, higher the prices of essential commodities.

Immediate rollback in the taxes is required. The government has turned a deaf ear to the problems caused by these hikes in the society. It seems to have been hell bentin shattering the livelihood of the lower section of society with a slow poison. As Diesel is the active fuel to be consumed in all commercial vehicles, its increase will naturally have a cascading effect – all the prices of the commodities such as, fruits, vegetables, grocery items including petroleum gas etc. will soar alongside.

India has to hold on and there is no choice in it. If we recall, the economy of the country was slowing for 4 to 5 years prior to the arrival of Covid19 in the scene. During the slowdown of the economy, the government took certain actions to actually reduce its own revenue rather than increasing it.Firstly, the corporate tax rate reductions in one fall fell from 30% to 25%, something which the government had promised 5 years earlier in the budget of 2015.

It had promised to reduce corporate income tax every year by 1%; it didn’t do so then and waited until the economy was seriously slowing and the investment was dropping. There was zero benefit in bringing down the corporate tax rate, neither was there any growth benefit nor any increase in investment. What the government lost was at least 1 lakh crore in revenue per annum.

Secondly, almost prior to the elections in 2019 the threshold for paying personal income tax was raised from 2.5 lakhs to 5 lakhs – meaning when we had an amount of 2.5 lakhs as threshold for personal income tax there was 60 million taxpayers, then when it was raised to 5 lakhs, the taxpayers, which already were extremely low in the country fell to 15 million.

There was a fiscal crisis already in the beginning of 2019 and while the government was claiming that the fiscal deficit was 3.4% of GDP, the actual fiscal deficit as revealed by the Comptroller and the Auditor General was 5.68% and not 3.4% as announced by the government. The government has been seriously facing revenue challenges and the economy post Covid19 will fall in any case. What course of action does the government adopt?

It goes against its own previously determined policy of eliminating administrative prices and allowing prices to fall when the international prices fall and vice versa; the government is doing exactly the opposite of that and is raking up the tax revenues. As demand in any case is low and there isn’t a lot of economic activities going on, the economy will contract in any case this year.

The inflation is inevitable. Thirdly, the fact that the Indian rupee has been depreciating is a major topic of concern since we import large part of oil consumption from the foreign countries. The Indian rupee, in the last one year has depreciated by 10%.

Almost 70-75% of people in India lives in rural areas. They hardly deposit money in Banks, they don’t live on debit or credit cards but on cash.

Apart from the big cities like Mumbai, Bangalore, Delhi etc. where people live on future incomes, credit cards or loans, most of rural India still lives on cash and they are flushed with cash liquidities to take care of uncertainties since there has been no government support for the past 70 years to provide them for any medical or family issues. They have kept that liquidity buffer with them.

Not only should the government be cutting prices on fuel at this point, it also should have simply distributed hard cash in the bank accounts of people 3 months ago when the lockdown was announced. A cash amount of 5k rupees in their JanDhan accounts and others as such to make up for the fact that they aren’t working throughout the period of lockdown.

If the people who haven’t been paid salaries for 3 months, who then wrapped up their stuff and walked out with sheer fear of hunger, had at least 5 thousand rupees on hand, they would have bought groceries and feed their children. By the marriage of them buying these goods to feed their own, the truckers would have demands for something to move on simultaneously.

These aren’t ordinary times, we have had a severe blow dealt to our already weak economy. Millions have lost their jobs and the shocking unemployment rate has come up which is 1 in every 5 people being unemployed. Survival of the transport sector, which is the backbone of our economy, is utmost important – if the transport moves, economy moves and vice versa.

Alongside the increase in the fuel price or the operational price, the prices of tollgates have too been increased recently due to the lockdown. Moreover, all the components or the input costs like tyres, spares, oil, the administrative costs, driver shortage resulting in higher wages, all accounts to a higher operational cost. Whether it will be viable for them to run their business depends on the time ahead.

Since 50% of the demand is low, 50% of the vehicles are sitting idle. What the government is doing is absolutely myopic. Coronavirus happened in almost all the countries in the world. Every country faced the same virus.

Only India reported the humanitarian crisis, none of Sub-Saharan Africa, none of our Asian neighbours, it’s just us who are facing this. We really did something wrong and as citizens we have to realise this and demand better from our government.

26-06-2020

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