When fuel comes pricey

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When fuel comes pricey

Sharp surge in fuel prices has been impacting wallets but it might not be a bad thing

There have been significant murmurs about how fuel prices in India have been shooting up silently ever since the Government allowed daily price adjustment. This, despite global crude prices being relatively stable at around the mid-50 dollar mark and the value of the rupee to the dollar also being stable at around the 63-64 mark. There was an impact of hurricane Harvey which hit Houston and the Texas coast on refined petroleum product prices, as a lot of American refining capacity was offline for few days. However, India has excess refining capacity for petroleum. Indeed, companies like Reliance and Essar make a bulk of their profits from refined petroleum exports. So, there appears to be no logical reason for petrol and diesel prices to have increased. However, over here, one has to consider a policy that the Modi Government has been trying to push for a while. That is to reduce India's addiction to fuel, which given India's extremely limited domestic crude production, is not a bad thing. India's fuel bill still accounts for the majority of the money that India remits abroad. With Union Minister for Road Transport Nitin Gadkari announcing that India will move to an all-electric vehicular ecosystem by 2030, thereby beginning India's de-addiction to petrol and diesel, is a smart move. Petrol taxes, while they pinch, do impact the richer classes more than the poor, unlike a higher Goods and Services Tax say on food and telephony. In that sense such a tax is perfect. However, since these taxes go to both the Central and State Governments and there is no consistency on fuel taxes which leads to major discrepancies in prices, as there is a Rs 10 difference in petrol prices between Delhi and Mumbai, for example, do make the headlines. There is also the issue with how Governments deploy the taxes they generate from higher fuel prices.

In Europe, where taxes on petrol and diesel are also very high, much of the money raised through high prices is immediately pumped into improving public transportation. In India, public transportation options in most cities are still abysmal and despite work on mass rapid transit systems across the country, most systems are still small and not good enough for private vehicle users to consider switching. In India too, there needs to be more transparency on how the money raised through higher taxes are deployed. There is nothing wrong in higher fuel prices, given vehicular traffic and pollution let alone the massive fuel bill which sends money to some despotic nations but the Central and State Governments need to urgently redouble their efforts towards urban public transportation as well as improve inter-city links. India is a high-tax country and the taxes should be used to improve the lives of people. Unfortunately people are understandably upset that there is no visible impact to their tax rupees. Additionally, the Government should be worried that dramatic price increases that impact India's spending classes will have an attendant impact on inflation, which will hurt the poor disproportionately. Higher fuel prices aren't a bad thing but moderation is the key.

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