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Upward trend in fuel prices

Upward trend in fuel prices

The fuel prices are constantly on an upward trend with most cities recording an all-time high in prices. In Pune, the price of petrol and diesel touched Rs 87.77 Rs 75.79 per litre. In Delhi petrol was priced at Rs 80.38 per litre and diesel Rs 72.51 per litre. The price of petrol rose by 39 paise and diesel by 44 paise from the previous day's level in the national capital. The prices have risen due to the weakening of rupee and rise in prices of crude oil in international markets. The Central government has said that the trend is due to factors beyond its control while the opposition parties have called for a Bharat Bandh on Monday to protest against the rise in fuel prices. Retail prices are set by retailers depending on the price of fuel, local taxes, dealer's commissions and the costs incurred in transporting the fuel from refineries. According to figures released by the Reserve Bank of India on Friday, India's current account deficit grew to 2.4 per cent of GDP in the June quarter from 1.9 per cent in the previous quarter due to the price of crude oil. Higher prices of diesel may push up inflation, which may force the central bank to raise interest rates. The Centre currently levies the excise duty of Rs 19.48 per litre of petrol and Rs 15.33 per litre on diesel. When the global oil prices fell, the Central government had raised the excise duty on petrol by Rs 11.77 a litre and on diesel by Rs 13.47 a litre between November 2014 and January 2016 to shore up finances. But it cut the taxes just once in October last year by Rs 2 a litre when the oil prices surged in the international market.

The effects of the weakening of the Indian rupee is becoming evident with each passing day when the retailers are forced to increase the retail price of petrol and diesel. A weakened rupee makes imports costlier and much of the petroleum products that we use in India are imported. This has increased the oil bill on a year-on-year basis and this is showing up in the current account deficit, which has grown to 2.4 per cent of the GDP in the June quarter compared to 1.19 per cent the previous quarter. While the rising oil bill will upset the fiscal estimates of the government, it will also anger the ordinary people who have to bear the fallout of the rising oil prices. It will also put the government in a tight spot by forcing it to provide the access amount from other programmes. The falling rate of Indian rupee is the result of how other currencies are doing in the market and there is little that the government can do to arrest the fall of the Indian currency. Prices of crude oil are also on an upward trend and there is nothing that the Indian government can do anything about it. So, both the reasons that make the fuel prices expensive in the Indian markets are beyond the control of the government. This means that the fuel prices may further see an upward trend and even when the government does not do anything about it, it will have an inflated oil bill to pay up.

The one thing that can bring about a sense of stability in the prices is to put the petroleum products under the GST regime. This will make the taxes levied on the fuel uniform across the country and the people may have to pay less. As of now, the Centre and the state governments separately levy taxes and they differ from state to state. After putting it under the GST, the fuel prices will be determined by the prices fixed by the retailer and the applicable slab of tax under GST. But this will impact the revenue earned by the Centre and the states on the sale of petrol and diesel. Another major fallout of the rising petrol and diesel prices is that the transportation sector will witness a rise in input cost, which in turn will shoot up the transportation cost of essential goods across the country. This can lead to price-hike and a rise in inflation. Despite its focus on the economy, the government finds itself helpless in containing the rising fuel prices and its cascading effects on the overall economy. The inflated oil bill due to the constant rise in crude oil prices internationally will seriously undermine the government's ability to increase expenditure in social sectors. At a time when the elections are due in three BJP-ruled states and the Lok Sabha election next year, the weakening rupee and rising oil prices are not the kinds of news that the government would want the people to talk about.

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