Finding a Formula for a Lasting Solution

Bhubaneswar: Consumers have been relieved by the central government’s reduction of taxes by 5 and 10 rupees per litre on petrol and diesel last week a bit intense protests across the country over rising fuel prices. Meanwhile, twenty other states and union territories including Odisha have also reduced vat on fuel. Therefore, the rise in prices for some other consumer goods, including transportation fares, has also been curbed. Due to the reduction of fuel prices, the pressure on the economy will also decrease to some extent. So the critics say, whatever the government says about the price cuts, its political aspect is more important. The reason is quite clear. Recently published negative results of by-elections in various states and Lok Sabha constituencies across the country has led to speculation that the price hike is slowed down in the wake of the five assembly elections, including Uttar Pradesh. The ruling party, BJP, will not want to disappoint the voters in the forthcoming elections especially in the Uttar Pradesh election. Therefore the government has taken such a step.

The important point is the government has already collected an adequate amount of money from fuel. As per data, in the first six months of the current financial year alone, 64% more taxes were collected than last year. According to the economists, even if the current tax rate is collected, more than the targeted tax will be collected by the end of the year. That way the government could reduce its dependence on fuel taxes. When the crude oil price was very low last year, the government raised petrol and diesel prices by Rs. 13 and Rs. 16 respectively. As a result, Rs. 3.61 lakh crore was taxed instead of 2. 67 lakh crore as previously estimated. The members of the Monetary Policy Committee have repeatedly warned the central and the state governments to reduce taxes on petrol and diesel. As they argue that the pressure created on the economy of the country due to the price hike can be reduced. According to Nomura’s calculations, after the fuel prices fell the general price rise may fall from 0.14 to 0.3 percentage points. This tax reduction is likely to increase consumer satisfaction, so people would want to spend more money. This will strengthen the economy. Now that the situation is normal than the pandemic times, the economic activities have increased. So the demand for fuel is also naturally increasing. This will make up for the loss that the government is bearing for the reduction of the fuel price.

On the other hand, it is a matter of concern that international crude oil prices will rise this year. The world bank has stated that in the coming times it may rise even more. If it happens, then then the retail price of fuel is likely to rise again. This will again burden the consumers. The consumers will be relieved only if the government once again reduces the amount of taxes raised at the same time last year. It is extremely unfortunate the way fuel taxes are determined by political interests. It should be done based on people’s situation, like the way it has happened in Panjab and Tamil Nadu. We can hope in future the political parties will take the right decisions at the right time in the public interest. According to the data, 51% of the target was recovered from petrol and diesel by the end of September. So there should not be any problems if the government reduces taxes in the coming times. The government ought to find a permanent solution to this problem, as the common people can get petrol and diesel at affordable prices.