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Is The Rise In Fuel Prices A Necessity Or Does It Show The Failure Of Governance?

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Over the last 2 months, we have witnessed politicians protesting and people suffering from the hike in fuel prices. For the first time, prices of fuel in certain states crossed the century mark this year. On 25 February, 2021, Dr Shashi Tharoor and other politicians from his constituency hit the roads with a rickshaw as a symbol for protesting against the new price hike.

The Tamil movie actor Vijay cycled to the polling booth to cast his vote. It was speculated that he used it as a symbol of silent revolt against the price hike of diesel and petrol. 

Prime Minister Narender Modi broke the government’s silence on this issue by delivering a statement saying“If the previous government focused on reducing India’s import dependence, the middle class would not have been burdened,” at the inauguration of the oil and gas project in Tamil Nadu. This statement was not well received amongst the masses.

In February this year, the continued northward march of fuel prices sublimed the financial weight of the consumer’s pockets. Petrol and diesel rates continued to spike, with retail prices rising across the country. Oil companies raised the pump price of diesel by 35 paisa/l and petrol by 30 paisa/l in Delhi. Across the country, the price spike ranged from 26–32 paisa/l for petrol and 30–35 paisa/l for diesel.

Representative Image.

Ever since India’s independence, the price of petrol never touched ₹100 in any state, until this year when it touched ₹100/l in three consecutive states, Mumbai, Rajasthan, and Madhya Pradesh. It was believed that fresh lockdowns might impact demand and push the prices down, but this was a domino. The fuel prices increased 20 times so far this year. The last time the oil price was inflated at this rate was in 2018, when crude prices shot up to $80 per barrel. 

The Finance Ministry seems uncommitted to cut taxes and provide relief to consumers but has fusilladed explanations for the price hike. They spoke of bringing oil and gas under the GST as a remedy that would end the herculean impact of taxes and bring oil reform. But this remedy seems far from being implemented, even today.

According to a survey by LocalCircles, 51% of people are cutting on the expenses to manage their spending on fuel prices. Another 14% of people are close to exhausting their savings and 2% do not spend any money on fuel. The people want their respective state governments to lower the VAT or levy an absolute value of taxes. The situation is worsening, and a report indicated that people from Bihar, Araria and Kishanganj smuggled petrol and diesel from Nepal.

The effects of price hike in Fuel

With price growth, there is inflation, provided the other prices don’t drop heavily. If inflation is not compensated by nominal increases in income, people become poorer. Low, medium and high rates of price hikes attract the daily attention of households and decision-makers differently. The consequences of fuel hike and inflation are:

  • Vehicle sales may record a sharp drop due to an increase in fuel prices. The dip in the sale of vehicles was already seen in January and it had an effect on MSMEs who were suppliers of goods to the automobile sector. This would also result in job losses and an increase in the unemployment rate. 
  • People without private vehicles would require to pay more for public transportation. The public transport sector has already seen a hike in operational costs over the past few months. 
  • The price surge would have an indirect effect on the daily routine of the consumers. For example, ordering fruits, vegetables, groceries, etc., would become costlier due to increased delivery charges. A spike in fuel price would ultimately lead to economic inflation.
petrol diesel
Indians pay the highest taxes on fuel in the world.

The international crude prices plummeted in 2020 due to lower demand, but India still paid heavily due to the blanket of various tax layers. Indians pay the highest taxes on fuel in the world. The golden rise in fuel prices is a total financial disaster where the echelons have a zilch idea of imparting good governance in bad times.

Last year witnessed the country’s GDP go down by 24% for a quarter and the next quarter saw a purge of 7%. While this drastic negligence could not be brushed away by manipulating figures, this created a limbo.

India has a dynamic system to alter fuel rates: the oil companies are responsible for the recent hike and the government has no control. No form of inflation in the history of any country has ever reaped sweet fruits. We can reflect on the example of Zimbabwe and its hyper-inflationary economic spin.

It is believed that little inflation is necessary in order to avoid unemployment. But if the gulf between demand and supply deepens, it negates all possible positive evaluations, further removing the country and its people from the economic track leading to the financial crisis.

Prime Minister Modi prides on the government’s goal of Atmanirbhar Bharat and aims to reduce carbon sink while shifting to renewable sources of energy. He wishes to achieve the Paris agreement targets by 2030. In 2019 he also envisioned making India a $5 trillion economy and a global economic powerhouse by 2025, which today seems a chimeric target. 

When India is facing a purge in the performance of its core sectors, a fiscal deficit, compounded with unemployment, economic slowdown, and stagflation, the rise in fuel prices surely seems to be a step towards governmental failure and not any necessity in this required turmoil. 

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