Even after 70 years of independence, the GHOST of British legacy continues to haunt our country in the form of policies that subdue aspirations of native Indians. The administrative structure and prevailing governance system reflects the same mindset as that of British, where government is the ruling class and citizens are mere subjects of the ruling class. What else explains the brazen hike in petrol and diesel prices by the government on account of increased taxes??
Since Modi's rise to power in 2014, taxes on diesel prices have increased five times whereas those on petrol have doubled. Taxes on these fuels now comprise nearly 66.67% of retail prices at petrol pumps.
In May 2020, when global crude oil prices had reached record lows, the government increased excise duty on petrol and diesel by ₹10 per litre and ₹13 per litre respectively. Since additional burden of excise duty was absorbed by oil marketing companies, retail oil prices didn't witness any increase. Nonetheless, raising excise duty in the midst of lock-down reflected utter insensitivity of the government.
Since Unlock 2, oil marketing companies have begun to increase prices to recover losses incurred due to excise duty hike in May. Therefore, root cause of current spike is government decision of increasing excise duty. With recent spurt in gasoline retail prices, India has emerged as the most expensive country for petrol consumption in Asia.
Historically, governments have kept diesel prices lower, however, BJP government has moved a step further by making diesel prices comparable to that of petrol. From a macro perspective, hike in diesel prices will hurt the economy more because diesel is a significant input component for industries.
Sectorally, agriculture and auto & trucking sector will be worst impacted due to the current decision of OMCs. In fact, major stakeholders such as farmers and truck operators are bracing for a considerable monetary suffering in a short-term period. With increased cost of transportation and subdued demand, the truckers are left with no option but to bear the burden of price hike.
Agricultural activities such as tilling, harvesting and transportation of farming output are dependent on diesel. Any increase in diesel price will have a direct bearing on the retail prices of vegetables and fruits. This will result in 'Cost-Push' supply inflation within next three to four months.
According to Bloomberg, recent increases in excise duty will help the government to earn revenues up to US$ 30 billion this year. As the revenues don't translate into proportionate level of services for common citizens, gap between promise and delivery will become more pronounced.
In an uncertain environment, increase in gasoline prices reflects a poor policy decision which will aggravate macro-economic issues over the next two years.
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