CHENNAI: Petrol prices have crossed Rs 100 a litre in Tamil Nadu, and if economists are to be believed, the prices will continue to hover around this rate until international crude oil prices fall.
Crude oil prices in the global market increased from around $52 a barrel early this year to around $75 now. This is nearly double the pre-pandemic rate of $39 a barrel. That said, even when prices were low globally, fuel prices were high in India. The reason cited was a shortfall in government revenue.
What this means for you
The increase in fuel prices is likely to trigger a domino effect of price hikes, starting with an increase in the prices of essential commodities and the cost of commuting.
Economist and former governor of the Reserve Bank of India (RBI) C Rangarajan said the Union and State governments are in a dilemma on how to tackle the increase in fuel prices. If the prices are cut now, they will face a revenue shortfall and the economy will deteriorate because of a consequent expenditure cut.
Moreover, travel by the public has been low this year, reducing revenue from fuel this year in comparison with the last.
"Even if the fuel prices are slashed, the government has to increase tax on other commodities. There has been no revenue for the Central and State governments due to the pandemic," he said, adding that a rise in government expenditure with a fall in revenue will cause inflation to rise. "This will result in more borrowing," he said. According to Rangarajan, respite for the public will come only after a fall in global fuel prices.
Noted economist Venkatesh Athreya, however, feels that the government should absorb the global price rise and not worry about fiscal deficit. "Every other country of comparable dimension is in large deficit. The government should not impose more burdens on the public by raising fuel prices. It needs to absorb the rise in global fuel prices as there is room for it," he said. Warning of more trouble in the offing, he said that increasing fuel prices will prevent the economy from recovering. The primary source of inflation is not government deficit but the rise in fuel prices, he said.
‘Will cause poverty to rise’
A Central banker, on condition of anonymity, said retail inflation shot up to a six-month’s high of 6.3 per cent in May, which is above the RBI's target of 4-6 per cent. Wholesale-price-based inflation data indicated that it surged to a record 12.94 per cent in May due to rising prices of crude oil and manufactured goods. The banker warned that these developments would result in a rise in poverty.
The Secretary of Koyambedu Food grains Wholesale Merchants Association, R Punnaiappan, said that public purchasing power has come down drastically. All this point towards the inevitable question: Can a people who are unable to find jobs and pay school fees and other bills afford to shell out over Rs 100 for a litre of fuel?
Kovai industries huff and puff
Coimbatore/Tirupur: Industrialists here complained that hikes in fuel prices are jacking up transportation cost of raw materials, forcing them to pass the burden on to the consumer by increasing prices of finished goods. (Story on this soon in these columns)
Where your money is going
* Basic price for VAT = Basic price before excise duty + Total Central Taxes
Petrol
Basic price before excise duty Rs 39.45
Additional excise duty (road and infrastructure cess) Rs 18
Agriculture infrastructure and development cess Rs 2.50
Excise duty Rs 11
Basic excise duty Rs 1.40
Total Central Taxes Rs 32.90
Dealer Margin Rs 3.02
LFR Rs 0.44
Retail Selling Price (RSP) Rs 100.11
Freight Rs 0.37
TN VAT Rs 23.93
Basic price for VAT* Rs 72.35
Diesel
Basic Price before excise duties Rs 41.92
Total Central Taxes Rs 31.80
Additional excise duty (road and infrastructure cess) Rs 18
Agriculture infrastructure and development cess Rs 4
Excise duty Rs 8
Basic excise duty Rs 1.80
Dealer Margin Rs 1.87
LFR Rs 0.36
Freight Rs 0.37
Retail Selling Price (RSP) Rs 94.10
TN VAT Rs 17.78
Basic price for VAT* Rs 73.72
Petrol costs more than Rs 100 a litre, and diesel isn’t far behind. The skyrocketing of prices is driving people to the edge as it comes amid widespread job losses and pay cuts. While some economists say the only hope is for int’l crude oil prices to fall, others opine that govts can cushion the impact. Meanwhile, e-vehicle makers are charging up to make it big