Petrol, Diesel prices at record high: Narendra Modi’s lucky crude oil charm is gone; welcome to the real economy
With the NDA government trapped in a fiscal mess, it won’t be able to significantly lower excise duties on fuel. Clearly PM Modi is running out of luck.
“Do you want a lucky person or someone who is less lucky?” asked Prime Minister Narendra Modi in February 2015, when campaigning for the Delhi Assembly election. Modi had said then, “Ok, let’s accept that I am lucky but you have saved money. If Modi’s luck is benefiting the people, what can be more fortunate? If because of my good luck, prices of petrol and diesel get reduced and common man saves more, then what is [the] need for bringing someone who is unlucky?”
Modi, on that day, went on to say that if his luck was benefiting his people, then they must vote for the BJP in Delhi.
The prime minister was referring to that year's low crude oil prices and its benefits to India, a very large importer of the commodity. Petrol and diesel prices in the country weren’t too high at that point. In February 2015, petrol retailed at Rs 56.49 per litre in Delhi and diesel sold at Rs 46.01 a litre, while international crude oil prices were trending at $60.00 per barrel. The context of Modi saying what he did was a taunt from his political rivals, who stated that the Modi-led NDA regime was reaping the benefits of lower oil prices whereas the Congress-led UPA regime suffered with crude surging to $130-140 levels a barrel.
Since then, times have changed. Modi doesn’t have that kind of oil luck any more. Skyrocketing petrol and diesel prices have shaped up into a big political issue, giving his government the jitters ahead of a series of crucial elections later this year. Crude is now trading at $80 per dollar, and petrol now costs Rs 76.87 per litre in Delhi while diesel sells at Rs 68.08 per litre. There are a few reasons why crude is up globally, including US President Donald Trump’s decision to withdraw from the Iran nuclear deal, and political and economic instability in Venezuela, a major petroleum exporting country.
India now figures high up in the list of countries where citizens suffer a high tax burden on petroleum products. For every litre of petrol, the centre and state governments charge an over 50 percent tax here, which is one of the highest in the world.
What was Modi’s lucky charm could likely turn into a shocker if fuel prices remain on the higher side for a prolonged period, translating into high inflation. As this writer mentioned in an earlier Firstpost column, if inflation picks up momentum forcing the Reserve Bank of India (RBI) to embark on a rate hike cycle, that can be the next big bad news for growth in Asia's third-largest economy. All projections of 7.5 percent growth and above could easily go wrong with this single factor; the fiscal arithmetic can go for a toss given that 80 percent of India's oil demand relies on imports. The growth scenario doesn’t look very promising even now to the extent that India requires to offer jobs to millions of new aspirants.
The political backlash on Modi on account of these factors will be huge as he approaches the next round of elections, as fuel prices are politically highly sensitive. That’s the reason behind the fuel-price revision hiatus prior to the Karnataka polls. Remember, the government raised excise duty nine times — totalling Rs 11.77 per litre on petrol and Rs 13.47 on diesel — between November 2014 and January 2016 to shore up finances as global oil prices fell, but then cut the tax just once in October 2017 by Rs 2 per litre.
Questions will be raised on the tax gains of not passing on the benefit of lower crude oil prices initially. At the time of writing this piece, news report said that petrol and diesel rates have been raised for the ninth straight day across the country even as the government continues to mull over solutions to arrest the price rise.
It is only a matter of time before rival parties pick this issue to question the government. The Modi government is trapped in a fiscal mess here, and hence won’t be able to lower excise duties significantly. Clearly, PM Modi is running out of luck for now.
(Data from Kishor Kadam)
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Excise duty on petrol and diesel was cut by Rs 13 a litre and Rs 16, respectively, between November 2021 and May 2022
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