All hands on deck
The Union government’s decision to cut the excise duty on petrol and diesel by ₹8 and ₹6, respectively, is a belated acknowledgement that April’s multi-year highs in inflation were spurred in significant measure by high fuel prices.
Cause of concern
• With the price of the Indian basket of crude oil having risen by more than 33% since November, and with a bulk of the surge coming in the wake of the Ukraine war in February, state-run oil marketing companies had raised retail fuel prices sharply.
• Largely as a result of the higher fuel prices and quickening food costs, inflation based on the Consumer Price Index accelerated to a 95-month high of 7.8% last month, while wholesale price gains soared to a multi-decade high of 15.1%.
• S&P Global’s April PMI surveys showed that both services and manufacturing companies had in fact flagged the surging input costs as a potential dampener of demand.
• A desperate RBI decided to stop waiting for Government intervention to cool the supply-side factors fanning inflation and opted instead to raise interest rates earlier this month.
Challenges before Governments
• The extent of concern about the inaction on the part of the Government is supply-side action can also reduce future rate rises, output sacrifice and borrowing costs.
• Both central and State taxes are buoyant… giving them space to cut taxes on fuels.” Now that the Centre has acted to ease some of the inflationary pressure emanating from the high excise duty component in fuel prices, the onus is on the States to sink their political differences over the Government’s past approach to taxing fuels and help reduce the burden on the common man by paring their respective State taxes as well.
What should be done?
• In such a volatile scenario, fiscal measures that help cool price pressures and leave an extra rupee or two in the consumer’s pocket can only aid to undergird vital consumption demand in the economy.
• Ultimately, all States must realise that the best way to safeguard their revenue interests would be to ensure that the growth momentum in the economy as a whole remains well supported. This is a moment that calls for all hands on deck.
• The sooner policymakers at the different levels of government, and of all political hues, realise this and act in concert, the better.
A late but Welcoming step
The Union government’s decision to cut the excise duty on petrol and diesel is a welcome step to ease the burgeoning cost burden on producers and consumers.
Practice Question: Discuss the importance of ASHA workers. What are the various challenges faced by them? Suggest some measures to improve their condition.