Economic Highlights
New Delhi, 28 March 2022
High Fuel Prices
SUBSIDIES VITAL,
CHECK PRICES
By Shivaji Sarkar
The country needs a new approach on prices,
taxes tolls and issues of progress. It wants to control prices as often the
leaders proclaim and then go on increasing every bit that is under the
administrative control. India must rethink introducing fuel subsidies to boost
manufacturing and other activities that could bring more revenue to the
nation’s kitty. Cut in prices to generate more manufactured goods sales and
revenues.
Post-poll the prices are rising almost 85 to
90 paise a day on the plea of rising crude prices. But the companies did not
reduce prices when crude prices crushed to a virtual zero during the pandemic.
The high fuel prices have stoked inflation as transport prices spiral making
goods and commodities expensive when the people need relief.
The administration says that the petroleum
companies decide the prices but despite supposed ‘genuine’ needs they freeze
prices for over a month during elections. It may be a coincidence but that is
repeated poll to poll.
Rightly, the Ukrainian situation has put the
country in difficult situation but wisely it could firm up an agreement with
Russia for continued fuel supply. That is prudent though was not easy in an era
of US-led sanctions. The balancing act is possible because of India’s moral
authority under Prime Minister Narendra Modi and the corps of diplomats.
The world can see that Sri Lanka has failed
in doing it and again Indian Oil has to come to its rescue by continuing fuel
supplies and keep running its power plants. Sri Lanka is in deep economic
crisis. Rice is being sold there for Rs 500 a kg and all commodity prices are soaring.
Inflation spikes to 14 per cent. India has over 13 per cent wholesale and 6 per
cent retail inflation. Income level in India is either thawed or post-covid at
a low level. Lanka got into the crisis as it deliberately chose to go into
Chinese ambit to keep off India. Its main foreign exchange reserves shrunk due
to reckless borrowings from China to finance infrastructure projects, according
to Hong Kong Post.
Successive governments in India have been
using petroleum as a tax-spinner forgetting that even a paisa hike on petrol
has cascading effect on the entire economy. Since the UPA times the economy is
dependent on taxes on fuel leading to its collapse to ‘mahngai dain’.
The successive administration should have learnt and corrected it. The problem
accelerated as domestic production plummeted to around 20 per cent and
dependence on imports increased causing the rupee to slide beyond Rs 76.
It has led to overall price spiral. Wholesale and retail
prices are going beyond the toleration level. Sunflower oil jumps by 20 per cent to Rs 182, soya oil sells at
Rs 162, dearer by 10 per cent; and palm oil Rs 151.80 dearer by 13.65 per cent.
Mustard oil, wheat, rice, pulses rise by over two per cent. Textiles and other
commodities are also becoming dearer.
Alternate fuel like ethanol, processed largely from sugarcane,
is being proposed for mixing with petrol. It is likely to make sugar expensive.
It is a myth that it would sell cheap. Processing cost is high. Ethanol
production can, according to US studies, cause air, water pollution, soil
erosion and habitat loss. It is being seen to benefit Maharashtra cane growers.
This apart ethanol is not supposed to be engine-friendly with its high moisture.
The Electricity (Amendment) Bill 2021 on which battery recharging
is to be based would make coal and power dearer. Besides, more use of batteries
will lead to higher coal generated power production causing heavy emission pollution
and spike power rates. Power workers are planning two-day strike shortly
against the bill as it encourages privatisation.
In the months leading up to the Covid-19 pandemic, US oil
production hit an all-time high of just below 13 million barrels per day (BPD).
As the pandemic unfolded, demand collapsed, and production followed. By
May 2020, oil production had dropped by more than 3 million BPD to 9.7 million
BPD.
India's domestic crude oil production has steadily decreased in
recent years. In 2013-14, Indian companies produced 37.8 million tonnes of
crude oil and condensate. That dropped to 32.2 million tonnes in 2019-20, a
sharp slide of 15 per cent. India produced 35.68 MTs of crude petroleum in
2017–18.
During the last over 15 years it was noticed
that as petrol prices rise, the economy gets into a spin. Under the World Bank
and IMF pressure India gave up subsidies causing immense harm to the poor,
middle and small enterprises, prices of commodities. A little subsidy, not
direct benefit helps every section of the society. Small hair cut is always
preferable than its total loss. It is a myth than India has a rich class of people
and the middle class is able to fend for itself.
There is nothing like a middle class, except
that it is slightly above the poverty level. A bumpy situation hits it hard.
Overall subsidies benefit a larger population and help the economy keep prices
under check. The nation unfortunately continued with the policies of Manmohan
Singh instead of correcting it.
India needs to understand the Lankan stress
on infra that drained its resources. India must go slow on infra now.
Infrastructure builds expensive assets with a higher recurring expenditure that
stresses the economy severely. Had it conserved its reserves, put off expensive
infrastructure projects, Lanka could have avoided getting into the mess. Increased money supply, infra investments and
depreciation of the rupee stoked inflation there.
The Ukrainian situation has disturbed the oil
supplies across the world. India has hedged it for now with the promise of
Russian supplies. World leaders could have influenced Russian leader Vladimir
Putin to put seize of Ukraine and not go into a full-fledged war. Today, it has
put Europe into a tinder box. For the folly of the NATO and European countries,
poor countries like India suffer the most.
The symptoms of Lankan and Indian economy are not different
except that India has the capacity and the size to sustain which Lanka does not
have. It would be prudent on the part of India to reintroduce subsidies on
petrol as alternate energy is yet not available. It would change dynamics of
economy, generate more revenue and can do better if infra is put in the
backburner and manufacturing is boosted to give the economy a kick-start. ---INFA
(Copyright, India News & Feature Alliance)
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