Fuel prices are on fire and before they climb again, excise duties were cut by the Government. But this may not solve the problem

If you drive past a petrol pump nowadays, you will notice something strange; many of the towers outside the pumps, that displayed the prices of the fuel, are being changed. Because while prices of regular 87-Octane petrol are yet to cross the three-digit mark, prices of premium fuel used in sports-cars have breached the 100-Rupee mark even in Delhi. The small cut in central and state excise duties along with asking the oil marketing companies to absorb a one rupee hit, changes very little. As the Reserve Bank of India did not raise rates, the Indian Rupee touched new lows against the US Dollar and will almost certainly go past the 75 Rupees to a Dollar mark by next week. The impact of American sanctions on Iran have made life tougher for India as well as spooking global crude prices back towards the 100-dollar a barrel mark.

India is stuck between two very difficult places, and there are few solutions in sight. Of course, curbing India’s insatiable appetite for petroleum products is impossible if India’s economy has to grow. At best, the Government can only control it by taking some critical actions. The first is to encourage more domestic discoveries of oil and natural gas and do so by stopping silly arbitration cases against private oil drillers. The priority now is not how much people owe in tax but to exploit India’s own reserves. The second is to encourage vehicle manufacturers to go down the path of hybrid vehicles, and by giving incentives such as tax breaks to do so. Even in a ‘Mild Hybrid’ where the battery does not power the wheels, real-world fuel economy is at least 30-40 per cent greater than normal cars. This will not only lead to fuel savings for consumers but also less vehicular emissions, a win-win situation.

This Government is acutely aware of the horrible optics of rising fuel prices and the rapidly declining rupee but with consumer and industrial demand down, rising imports even of manufactured goods particularly from China their hands are tied. So for the time being at least, until the end of the year expect the rupee to keep falling, maybe close in at the 80 rupees to a Dollar mark, expect petrol prices to touch 100 Rupees a litre sooner rather than later and the markets to keep correcting. The only bright side in all this, at least year Diwali will be a bit more subdued and pollution levels lower.