Fuel prices have borne witness to steady hikes in the last five days. In the national capital, the price of petrol has reached Rs.75.61, whereas the all-time high is Rs.76.06. In Mumbai, the price has reached Rs 83.45 as opposed to the all-time high of Rs.83.62.
The all-time high petrol prices were reached in 2013, when the price of crude oil was about $112 a barrel; today the price of crude oil is about $72 a barrel.
International oil prices had begun descending since July 2014 - the period post the previous all-time high. The Modi government, which came to power in 2014 itself, instead of transferring the benefits of the reduction in prices then, decided to exploit the opportunity by using it to increase revenue and reduce the fiscal deficit.
The government had achieved this by hiking excise duty on auto fuels. This was done repeatedly, with the result being that that the majority of the benefit from falling international oil prices accruing to the government rather than the consumers. In the period from November 2014 to January 2016, excise duty on petrol and diesel was hiked nine times, totalling Rs.11.7 on petrol and Rs.13.47 on diesel. Similar practices were continued, and a Newsclick report in 2017 showed that the result of this was a doubling of the government’s tax revenue from petroleum products as a percentage of GDP.
With the rise in international oil prices, the country’s crude oil import bill is also expected to rise. An Economic Times report citing an Oil Ministry report expects the import bill to surge by 20 per cent in the financial year 2018-19. This can also disrupt the government’s fiscal math by requiring higher subsidies on petroleum. The accompanied fall in the rupee’s exchange rate will also affect the price of imports.
The rising oil prices will also affect the Indian economy through inflation. The price of oil, being a major input to the economy, can influence the economy and the resulting inflation would bring down the real disposable income of households and inflict further woe upon consumers.
Though the government had not been transferring the benefits of falling international prices to the consumer in the past and also not stemming hikes, for the 19 days prior to the Karnataka legislative assembly elections, the oil marketing companies brought about no hikes in the fuel prices. Now, for the past five days since the election, there have been daily hikes in the prices.
This latest price hike, which may bring prices to an all-time high and bring distress to consumers, comes at a time when there is already dissatisfaction with the NDA government’s policies. The country has been bearing witness to many protests by the farmers, workers and youth over the government’s economic policies, and the hike in prices can only bring about further agitation.