I am not sure, whether or not the consumers are even nominally satisfied with the rate cuts of petrol and diesel. Earlier this week, Finance Minister Arun Jaitley announced a Rs. 2.50/ litre cut on diesel and petrol prices. He said , “We will slash excise duty by Rs 1.50, and the OMCs (oil marketing companies) will factor in a decline of Re 1 in their pricing. The central government will extend an immediate relief of Rs 2.50 on both petrol and diesel to the consumers. Furthermore, I am writing to state governments today that they should also absorb an equivalent amount (Rs.2.50) through VAT as the Central government.” In total, the government has envisaged providing a relief of Rs. 5 to the consumers.
The price cut may seem negligible, but Rs 1.50 cut in excise duty will lead to Rs 10,500 crore loss in revenues for the union govt. However, Arun Jaitley has shown confidence in absorbing this burden from the increase in tax collections from other sources.
It’s evident that this rate cut is not going to satisfy the majority section of the society. Even, if the government reduces the rate by Rs 5 or Rs 10 further, that won’t also be enough. Therefore, besides reducing prices and increasing expenditure, the government should spread awareness, to make people understand the arithmetic behind its fiscal policies and constraints in respect of its budgetary allocations.
Several parameters define the health and stability of the economy. The fiscal deficit (government expenditure minus total receipts, excluding borrowings) is one of them. Well, it’s understood that a reduction in taxation revenue will make the government resort to raising money through borrowings, to meet its budgetary targets which will shoot up its overall liability. There is another domain that will get impacted, i.e., global investor’s confidence.
A higher fiscal deficit generally has an impact on interest rates and inflation. And these factors are considered by an investor for assessing the health of an economy, to check whether his investment will give good and desirable returns.
In this case, the interest rates might increase as the government will resort to borrowings from banks. This will squeeze the funds available for private sectors, affecting their profits. This, in turn, will inevitably impact the confidence of foreign equity investor.
It is well known that the BJP government has been pitching for higher global investments ever since it came to power in 2014. Make in India campaign is BJP’s flagship campaign.
All the opposition parties that are complaining of high petrol and diesel prices are very well aware of the economic setbacks, but since India is a democracy and prone to vote bank politics, none of them will say anything about the aforementioned concerns.
Nobody is interested in educating the citizens; all they seek is an opportunity. Rahul Gandhi should ask Congress-ruled states first to apply the Rs. 2.50 cut in the VAT and then call this price cut “an ant” compared to “the elephant” (hike).
Unfortunately, India relies on 80% imports of oil to clear the market; because unlike the USA, India can’t rely on import substitution in this sector. Perhaps, that’s why the Modi government is emphasising so much on the rapid development of sustainable energy, which shall reduce our dependence on oil.
The prices of petrol and diesel are not skyrocketing because of Modi govt. The prices are on the rise due to the fundamental economic principle – the mismatch between supply and demand. Saudi Arabia, the leader of OPEC nations, has been accused of cutting oil supplies to generate more revenues. Recently, Bank of America Merrill Lynch has speculated that Brent crude price per barrel may further increase up to $100. Currently, it’s $86. Nobody knows, when will Saudi Arabia and OPEC increase oil supply. In an interview with India Today, Union Oil Minister Dharmendra Pradhan had said: “for the last three years India has been raising this issue before all international forums.”
Last week, Donald Trump had castigated OPEC at UNGA. “OPEC and OPEC nations are as usual ripping off the rest of the world, and I don’t like it. Nobody should like it. We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good,” said Trump.
Let’s hope OPEC responds positively.
Meanwhile, The citizens must understand the consequences of rate cuts. Slashing taxes is not an easy decision. Oil is not a cheap commodity. And the government also provides fuel subsidies to benefit the consumers. Opposition parties are only playing politics over this issue. Even, they couldn’t have done anything, if they were in power. Also, as per Arun Jaitely’s request, Congress and other opposition parties must act immediately by slashing VAT.
I suggest at this moment that we must cooperate with the union government as they are predominantly not responsible for this situation.