Modi government can no longer escape pruning fuel prices for a favourable poll verdict

Kamlendra Kanwar
New Delhi | Updated :
22 September 2018, 07:22 AM
Modi govt cannot escape pruning fuel prices for positive poll verdict (News Nation)
Modi govt cannot escape pruning fuel prices for positive poll verdict (News Nation)

The din over the Rafale fighter aircraft deal is barely out of the limelight as the Congress party digs in for a fresh assault on the BJP, on the spiralling petrol and diesel prices which are of direct concern to the country’s middle class. Equally in the line of attack is the falling value of the rupee which is a reflection of the rupee being the worst performing currency in Asia at present.

There have been worse times in the past—in 1991 when foreign exchange reserves were at their lowest ebb, sufficient only for a few weeks’ imports but the Opposition this time around is all fired up. Congress president Rahul Gandhi is, however, unable to articulate the nuances of the assault on the BJP, and is a poor advocate of the Opposition position though he no longer lacks the decibel power.

The Modi government is showing signs of waking up and is looking at measures to counter the Opposition challenge.

In the series of meetings he held recently with his economic advisers and Finance Ministry officials to brainstorm on ways to tackle the oil crisis, Prime Minister Narendra Modi advocated “strengthening the macroeconomic fundamentals” and promised to remain firm in the path of fiscal consolidation through revenue buoyancy strategies.

With nearly half the price of Rs 80-90 a litre for petrol being on account of central and state taxes, the crisis is not beyond repair. Had it not been for oil prices being used to subsidise various social welfare schemes of the governments both at the Centre and in states, the price could have been slashed without much ado.

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Elections to the Lok Sabha being a bare eight months away, this would be a bad time to give up or slash subsidies for government’s social welfare schemes, but therein lies the dilemma for the Modi government. Some sectors like agriculture cannot be touched for resource mobilisation given the sensitivity to any revenue-raising fresh measures in respect of this vital vote bank.

The Modi government is also fearful of the fiscal deficit going out of hand because of its deleterious effect on inflation and is keen to eschew any measures that would raise the deficit to alarming levels with its concomitant effect on prices.

Although world oil prices have been moving up since last year, the latest trigger for the sudden spurt in May was US president Donald Trump's withdrawal from the Iran nuclear deal earlier that month. That has disturbed the oil economy by setting Trump and the Iranians on a collision course.

The Americans on their part have merrily increased their dependence on local shale oil but importers of petroleum products have been left in the lurch. Modi’s new shale gas strategy outlined last month taking a cue from the US has provided that by end-2013, shale gas exploration bids in six Indian regions (Cambay, Assam-Arakan, Gondawana, KG onshore, Cauvery onshore and Indo-Gangetic basins) could reveal long-term potential. 

There can be little doubt that the NDA’s prospects in the 2019 Lok Sabha elections would be grievously hit if timely steps are not taken to stem the tide and reduce the prices of petroleum prices.

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The Modi government will have to shed its seeming complacency and measure up to the challenge. Whether it reduces excise duties or brings petroleum products under the purview of GST or resorts to other measures, there is indeed no escape from pruning petroleum product prices to get a favourable verdict from the electorate.

Putting the burden of subsidies on the oil companies is hardly the right solution considering that four years ago the Modi government had rightly decided to free them to clean up their books.

The government would indeed have to act fast and strongly to make oil cheaper. The people are not prepared for any resort to half-hearted measures. Implementing GST on petroleum products is a long-considered option. One wonders whether the Modi government is waiting to cool public tempers closer to the polls with a slashing of petroleum prices.

First Published: Thursday, September 20, 2018 11:36 AM
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