Rocketing fuel prices
The oil prices have touched a new high in the country and the news does not bode well for the government, especially in a year when state Assembly elections are lined up one after another until the much-awaited Lok Sabha elections next year. On Thursday, petrol price touched Rs 85.29 per litre in Mumbai and Rs 77.47 per litre in Delhi. Similarly, the diesel rates stood at Rs 68.53 and Rs 72.96 per litre in Delhi and Mumbai, respectively. The rise in the fuel prices is linked to the rise in crude oil prices internationally. The benchmark for more than half of the world's oil, Brent hit $80 a barrel last week. When the fuel prices were low – the government, by imposing additional taxes did not allow the benefit to transfer to the consumers. Now that the international fuel prices are on the rise, the government will have to forgo some of those revenue windfalls even as individual customers have to pay more for the fuel. Indications from international oil markets suggest that the oil prices are likely to surge in the short-term. According to Kotak Institutional Equities, even if the oil prices remain in the range of $70, the nation would pay Rs 35,500 crore in oil subsidy, or Rs 10,500 crore higher than budgeted. Congress President Rahul Gandhi on Thursday threw a challenge at Prime Minister Narendra Modi that he should either cut down fuel prices or face a nationwide Congress agitation. The party has organised protests against rising fuel prices in Delhi and Mumbai.
The rising oil prices may seriously upset the state of the economy and can impact the prices of several essential commodities in the country. As of now, the economy looks to be in a comfortable zone with the GDP expected to grow by 7.5 per cent in 2018-19, current account deficit in the range of less than 2 per cent, a forex reserve of over $400 billion and inflation averaging at 3.3 per cent in 2017-18. The fiscal deficit targets were constantly achieved in the last years. But, despite strong fundamentals, if the prices of commodities increase in the market riding on the higher oil prices, the government will have to face the wrath of the people. The government has already made it clear that it is not going to interfere with the oil prices, which are being guided by international market forces. Giving more subsidy to keep the oil prices under control is not being considered by the government as that would force the government to cut down its expenses on the social sector and its flagship programmes.
When Modi took charge as the Prime Minister of the country four years ago, the oil prices were at a record low of less than $50 a barrel. The nation had to pay less on oil subsidy and the government earned a handsome tax revenue by imposing additional taxes on oil imports. Besides low oil prices, the monsoon remained normal in the last four years ensuring that agricultural outputs were as per the targets. Overall, the economy fared better than the previous years. Now, with the Lok Sabha elections only a year away, the economy is witnessing new pressures in the form of rising oil prices and an agrarian distress engulfing a large part of the agricultural sector. Various state governments, including BJP-ruled Maharashtra and Uttar Pradesh, have announced farm loan waivers to help the farmers recover from the debt-trap that is compelling them to commit suicide. The Union Government has introduced a number of farmer-friendly initiatives in the Budget apart from promising a minimum support price for their crops at one-and-a-half times the cost. While the government initiatives will take time to change the ground realities, the impact of rising oil prices will be felt more immediately as it is likely to push the prices of essential commodities in the short-term.
A resurgent opposition, after their show of unity on Wednesday at the Karnataka CM's swearing-in ceremony, is likely to grab the issue and make a concerted noise on the rising fuel prices that have a bearing on the prices of other essential commodities. The government's inability to do anything in the matter will only increase its problems. In an election year, it cannot afford to remain a mute spectator to rising prices in the country.