GOVT’S DILEMMA

Source: The Hitavada      Date: 06 Oct 2018 12:01:28

  

GOVT’S DILEMMA

FINALLY the Central Government had to bow to popular pressure and reduce the prices of petrol and diesel by Rs. 2.50 per litre. However, the rise in the prices of these fuels in recent months has been so high that this reduction by the Government may appear to be a pittance in comparison. This was reflected in popular reaction to the Government’s gesture. 

The Government resisted popular pressure for months for reducing the rates but it could not have been stubborn for long as the ruling party faces the electorate in the next few months. However, the Government’s reluctance to reduce the prices was understandable as any reduction in petrol and diesel prices would entail huge loss of revenue. And such a loss of revenue would lead to cut in development expenditure when the economy appears to be gaining momentum. Alternatively, if the Government still persisted with its development programme by resorting to market borrowings then its fiscal balance was bound to derail.

Thus the Government was on the horns of dilemma, but had to bite the bitter pill. Although there is some rise in direct tax revenue earnings of the Government, the indirect tax regime Goods and Services Tax (GST) is still to get stabilised and therefore there is uncertainty over indirect tax collection. Hence the levies on petroleum products offered some cushion to the States and Central Government and ward off the danger of mounting fiscal deficit.

The rupee’s precipitous fall has added to the problem as the rising dollar entails a huge outgo of foreign exchange on account of petroleum products as the country is dependent on imports to the extent of 80 pc. This in its wake contributes to the widening of Current Account Deficit (CAD).

The rising prices of petroleum products in international market have added to the country’s problems as also the curbs imposed by the United States on oil imports from Iran. Iran is a major supplier of oil to India. The US embargo on Iran has further contributed to the shortage of supplies in international market, further deepening the crisis. The international crisis is having a very deep impact on the Indian economic situation. The best course left is to reduce the use of oil.