India cuts fuel excise duty to ease inflation
Fuel prices in India have been rising faster than Bitcoin in the last 2 years. Well, that is an exaggeration but the incline has been steep so much so that it has been eating into the incomes of many daily wage earners by 20% to 40%. Two years ago, the price of gasoline or petrol in New Delhi was about INR 72 per liter or $1 per liter. In November 2020, the price of gasoline had risen to INR 82 per liter. Yesterday the price of gasoline in India was about INR 110 per liter. The rise in fuel prices is especially contrasting when one looks at the price of Brent Crude.
Brent Crude in 2019 was $60 per barrel and during the same month in 2020 was ~$40 per barrel. Despite a fall in the price of base crude oil, prices in India went up by nearly 15%. Crude went down by 33% during the same time period. Was it due to the exchange rate? The chart below tells us FX rates weren't the reason either.
USDINR FX rates have been fairly stable between 72 and 75. Not even a 5% move. The reason for such a sharp increase in prices was that both center and state governments had increased the excise duty and VAT on petrol (gasoline) and diesel. In fact, the tax component on petrol during 2019 was about 33%. By 2021, it has almost doubled to 66%.
In the past 2 years, fuel prices in India had risen by more than 50%. Of course, just like the rest of the world, India too was dealing with COVID-19 during most of the above time period, and salaries had definitely not kept up with such steep increases. Transport costs have shot up during the last 1 year by nearly 40% by many reports. Inflation was being impacted by fuel prices so much that India's Central bank was forced to recommend cutting excise duty to the government. It had simply become unsustainable.
Yesterday, the central government decided to cut excise duty on both petrol and diesel. A cut of less than 5% on petrol and nearly 10% on diesel was announced. Compared to a 50% increase, it is nothing but there has been some initiative. It is difficult to say what was the reason for such benevolence from the government. Probably the results of the recent by-polls conducted in some states. I think the message of this cut is clear. Want the government to act rationally - make them lose some elections as prior to the results, most noises about high fuel prices were completely useless and falling on deaf ears. Hope the states follow with some minor cuts as well to show their compassion for the average person for whom inflation is comparable to a slow death.
Posted Using LeoFinance Beta
