The Modi government has been a major beneficiary of low crude oil prices, which created scope for it to jack up excise duty on petrol, diesel and manage fiscal challenges in a better way. But the scenario has now changed radically. The oil market is on an upswing. It is already well beyond the government’s comfort zone.
It is true India’s current account deficit (CAD) is vulnerable to oil price shock. Foreign capital is needed to finance the CAD deficit. But unfortunately, panicked investors are exiting India, putting pressure on the rupee. The government is worried that it may see a repeat of 2013 when the Indian currency depreciated substantially on CAD concern.
India meets more than 80% of its crude oil requirement through imports. The government’s fiscal position is already precarious. It failed to stick to the 3.2% fiscal deficit target for 2017-18 due to revenue shortfalls.
However, there is no need to panic.
The government should tell fuel consumers that pricing of petrol, diesel is already deregulated and any intervention in the market would be a regressive step.
At a time when foreign players are betting big on the Indian fuel retail market, any market intervention by the government would send out the wrong message to them.
The government can moderate the impact of taxes on fuel pricing to the extent it does not impact its fiscal math to provide relief to motor fuel consumers.
The government should also use the opportunity to prod the industry to embrace higher energy efficiency measures.
Posted By : Admin
Posted Date : 05-10-2018