A minister remarked facetiously in relation to rising fuel prices that cycling is good for health. The middle and lower classes may wish to send him by bullock cart to a school of economics so that he may understand what damage high fuel taxes can inflict on the economy that is just about to emerge from the depths of a Covid-hit slump. While petrol is selling at above Rs100 a litre and diesel is inching to those heights in multiple regions, the price of cooking gas is hitting the roof too, raised as it was by Rs.25 per cylinder on Thursday.
The cascading effect of the fuel price rise is reflected in price escalation in goods as milk to cement prices spiral and services. The effect was visible in retail inflation ruling at six per cent, which helps explain somewhat the sharp rise in cost of living. For governments, at the Centre and in the states, fuel is a weapon to raise revenues at a time of a sluggish economy as lockdowns are technically still in force in many parts of India. In the last 12 months, the government’s take from fuel tax was a phenomenal Rs.5.6 lakh crores, with the Centre taking a lion’s share as most recent increases were in the form of cess and surcharge among many other levies.
A study showed how the Centre could easily cut fuel price by Rs.4 to Rs.5 per litre and not suffer a dip in revenues as demand would climb when the economy takes off again with post-Covid consumption. However, low hanging fruits like liquor and fuel sales, with very few hazards for the treasury to mop up the money, are too tempting. Paradoxically, India raised taxes on fuel, of which it imports about Rs.8 lakh crore worth annually, when international prices were hitting the bottom at $30 per barrel last year but are now ruling at $70. Consumption is being taxed whereas corporate taxes have been reduced. This is not an economic riddle so much as a disaster in waiting that will put our economic recovery in jeopardy.