Fuel Inflation Should Not Be Looked At In Isolation

by September 12, 2018 0 comments

Don’t vent your anger on Modi for fuel, as the Modi Government is doing its best to control the situation. It is now the time for civil society to chip in too.

It took less than 10 years for an inept Congress-led coalition under Prime Minister Manmohan Singh to take decrease the value of the Rupee to 69 against a dollar by 2013 — a depreciation of 57 percent from a level of 44 to a dollar in 2004 under the Late Atal Bihari Vajpayee. In the said period, petrol prices soared from Rs 39 per litre in 2004 to Rs 83.83 per litre — a whopping rise of 115 per cent in just nine years. That Congress president Rahul Gandhi had the audacity to call for a Bharat bandh on September 10 is opportunistic politics at its lowest, given that his party hiked interest rates (REPO rate) by a record 13 times from 4.75 per cent to 8.5 per cent between March 2010 and October 2011.

Speaking of the recent fuel price surge, the Narendra Modi-led dispensation has done an outstanding job. Fuel prices rose by a mere seven per cent in the last four odd years, between 2014 and 2018, despite multiple global headwinds,  including rising global protectionism, currency and trade wars. It will become more clear if the Indian scenario is tallied with the following global economic woes: Renegotiation of NAFTA that led to 18 per cent fall in Mexican peso in June 2018 alone, free fall in the Turkish Lira that is down more than 85 per cent in the last 18 months, free fall in the Argentine peso that is down roughly 52 per cent in last one year, with interest rates at 60 per cent, persistent problems in Brazil that emerged out of the worst recession since 1936 only recently, grinding slowdown of the Chinese economy with the Yuan at a 13 month low, and, of course, South Africa that has just officially entered into recession, with the Rand down more than 40 per cent in the last one year.

The dollar strength makes India’s imports costlier as we import more than 80 percent of our crude oil requirements. The Opposition would do well to know that while the Congress-led UPA had immense benefit of a very weak dollar in 2013, with the dollar index (DXY) trading at levels of 78 in 2013, the DXY has risen by 23 per cent to almost 96 levels currently. Despite the surge in DXY and despite having to pay off oil bond dues of two lakh crore rupees and FCNR(B) deposits of $34 billion issued in September 2013 by the Congress, India stands tall today with the IMF lauding India for having done well on the macro front.

While fuel taxes will eventually come under the ambit of GST, that alone cannot be the solution to curtail fuel price rise. The price of a commodity is about demand-supply dynamics and fuel prices in India have risen because we are a fuel-guzzling economy, consuming more than three million cars and 20 million two-wheelers every year. We need to make greater use of public transport and anyone who asks what the Government will do with Rs 12-13 lakh odd crores it will collect via GST in FY 2018-19, needs to be told that India needs at least Rs 50 lakh crore ideally speaking, if not more over the next four years till 2022, as per a report by CRISIL to ensure sustainable world class infrastructure for citizens.

Reducing excise duties to bring down fuel prices is ill-advised as it would raise the Government’s subsidy burden. Reducing capital expenditure will impede growth. Raising dollar loans via overseas bonds will eventually hurt India’s external debt profile and credit rating. Faced with a Hobson’s choice, it is to the credit of the Modi dispensation that it has brilliantly renegotiated terms with Iran, accounting for 10 percent of our crude oil imports. And this, despite the second phase of the looming sanctions on Iran by the US that will kick in from November 4, 2018. Iran will handover the Chabahar port to India in the next one month for operation and maintenance. This, along with Iran agreeing to an enhanced insurance cover, longer repayment period and a freight discount of 80 percent, will ensure that it is only a matter of time before local fuel prices in India start falling.

Again, comparisons with FY 2012-2013 are odious and ill-founded. Retail inflation touched a high of 12 per cent in 2013, with both fiscal and current account deficit above 4.5 per cent, while in 2018, average CPI was 3.6 per cent with fiscal and current account deficit at 3.5 per cent and 1.9 per cent. The middle-class today is far better off after the implementation of the 7th Pay Commission recommendations, which raised dearness allowance from five per cent to seven per cent. Reduction in income tax rate from 10 percent to five per cent in the Rs 2.5-5 lakh bracket helped more than 75 lakh taxpayers. Interest rate of 8.55 per cent under the Atal Pension Yojana for senior citizens and 8.1 per cent under the Sukanya Samriddhi Yojana for girl child have transformed lives of millions.

Fuel inflation cannot be looked at in isolation. The Modi Government has taken umpteen measures to financially empower the middle-class in last four years. If fuel has become costlier, eating out has become far cheaper, with GST at just five per cent. Home loan rates came down from 11 per cent plus in 2013 to an average of 8.35 per cent in last four years. Life cover of two lakh rupees to the marginalised for an annual premium of just Rs 330, has benefited more than 5.4 crore Indians. Initiatives like 1.77 lakh kilometres of roads built in the last four years, bringing Tripura under the broad gauge network for the first time after it became a State in 1972, launch of India’s first semi high-speed train in 70 years, the Gatimaan Express, 14-lane Delhi-Meerut Expressway and India’s first ever solar panel-powered Eastern Peripheral Expressway, are just a few examples of how every penny we pay as taxes, go towards building a more empowered Bharat. The Modi Government is doing more than its fair share. The civil society needs to chip in too.

(The writer is an economist and chief spokesperson for BJP, Mumbai)

Writer: Sanju Verma

Courtesy: The Pioneer

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