The BJP suffered a heavy blow and lost a prestige battle in the byelections. All political observers credit the party's loss to opposition unity. Amid the new united show, one key factor that slipped most discussions is anti-incumbency.
In the case of Kairana Lok Sabha byelection, while giving credit to opposition unity, observers missed the basic numbers. In 2014 general elections, BJP candidate Hukum Singh got votes more than the combined votes of three political parties. It means that anti-incumbency, both at state and national levels, has also played an important role in BJP's defeat.
In such a situation, it becomes important how BJP tackles fuel price rise. General elections will be held in less than a year. The government can’t antagonise its electorate. Petrol prices impact the general public. It is one commodity that has the biggest contribution to inflation. According to a study, a $10 per barrel hike in crude oil price in the international market increases WPI by 1.7 per cent. It reduces GDP by 0.2-0.3 per cent. It is important for the BJP that any hike in crude oil in international market should have minimum impact on common people in India.
Genesis of the problem
The central government is filling its kitty with the petrol tax. It may not be good economics, especially when oil prices are increasing in international markets. Generally, people have no problem if the petrol prices are less than Rs 70.
Narendra Modi was lucky as far as crude oil prices are concerned. In 2013, oil prices reached $118 per barrel. When he became the prime minister, in May 2014, the prices declined and touch $30 per barrel in 2015. Even though retail prices of petrol and diesel are linked to the crude price in international market, the government increased taxes. The benefits of low crude prices were not passed on to the consumers.
The argument given by the government was that this money would be used for infrastructure development in the country and this will have a direct impact on the GDP.
It is not clear how much of it was used in infrastructure development. It is certain that it did not reflect in an increase in GDP. India witnessed one of the lowest GDP growths in the last couple of years.
What options does the government have?
As far as fiscal disciple is concerned, if Arun Jaitley made the budget assuming low crude price, then it was not a good planning. The Finance Ministry officials will have to do something about it. After all, collection from petrol tax has increased almost two-and-a-half times from FY 2014 to FY 2018. It's time to pay back the general public.