Saturday 25 Jun 2022

Fuel price cut great, but govt must rely less on fuel taxes

| MAY 22, 2022, 11:44 PM IST

The Union government on Saturday evening sprung a surprise and announced a reduction in central excise duty on the sale of fuel -- petrol by Rs 9.5 and diesel by Rs 7. The move that took the people, who by now had given up hope on any relief from rising inflation came as a pleasant surprise not just for the middle class and the poor who were already reeling under high inflation but also the traders and the business community who can expect operational costs to reduce going forward.

The price reduction, given as it comes even though there is no election on the horizon, has been welcomed by political parties across the board but, the extent to which it goes to help reduce the price of essentials remains to be seen.

In many ways, the central government was left with little option but to reduce the tax on fuel given that it was fast running out of options when it comes to curtailing spiralling inflation. It must be recalled that it was the Union government that had unilaterally hiked prices of petrol and diesel back in March and April 2020 when global oil prices had crashed in the wake of worldwide lockdowns and a recession across the world.

Back then the Indian consumer was denied any relief in the form of lower rates of fuel even though global prices had crashed. With global prices now rising to all-time highs, the Indian consumer was feeling the pinch and yet the government spokespersons continued to defend the high prices.

The question that must be asked now is how high exactly are the government figures of inflation and what is the government not telling us. In addition to the official figures which placed inflation at above 7% over the preceding months, we have evidence in the form of a recent out of turn rate hike by the Reserve Bank of India and another one scheduled to take place in June.

A reduction in taxes on fuel should not been seen as the move of last resort that the government is undertaking, but instead one is hopeful that it is one of the steps that the government intends to take to shore up the economy.

Years of bad management which the government prioritised headline management rather than actually economic management has left the country’s economy stagnated. This combined with a high tax regime for business and individuals, the situation was looking increasingly bleak no matter which way the government sought to paint it.

More than reduction in fuel prices, the government badly needs to restructure taxation in order that it can help shore up its finance without having to tax fuel as heavily as it does. In the past the government has been found to be reducing the wrong kind of taxes in the form of the capital gains tax while keeping the taxes on essential commodities high. In reality, a government that cares about the people should have been doing the opposite.

One hopes that better sense prevails.

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