DNA Edit: Consumers have to grin and bear the price hike

The fact that petrol prices have gone up for the ninth straight day — reaching an all-time high of Rs 76.24 per litre in the national capital — is certainly not good news for the Indian consumer. Delhi is certainly not alone as the price hike, which was increased in the range of 33-34 paise per litre and 25-27 paise per litre across Kolkata, Mumbai and Chennai, means that the Indian consumer’s wallet will be hit hard.

But what’s even worse to know is that things are likely to only get worse in the coming days and there is no other option but to bear it. Petroleum Minister Dharmendra Pradhan has met with state oil firms and there is speculation that oil prices may be reduced, but despite this the problem for the common man is that there is little the government can do at this stage.

The US withdrawal from the Iranian nuclear deal and Saudi Arabia’s IPO — Initial Public Offering — of its state oil company Aramco will ensure that oil prices will remain high for some time. Currently, Brent crude oil is trading at $79 per barrel, almost double than what it was two years ago at $40 per barrel. The rise in crude oil prices directly impacts India as we import over 80 per cent of the oil we consume — a figure that will not change anytime soon.

The problem is made worse by the fact that the rupee is falling against the US dollar, making the import of oil more expensive. As a result, the government will have no choice but to allow oil companies to pass on some of the burden to the consumer.

Given this scenario, rising petrol prices is a given. The Opposition Congress has sought to politicise the issue, ahead of polls in Rajasthan, by demanding the Centre cut excise duty and VAT to ease the burden on the common man, but that is no solution. For one thing, the cutting of VAT is state determined and the cutting of excise duty is simply a stop-gap solution.

The government is currently targeting reducing the fiscal deficit to 3.3 per cent this year from 3.5 per cent in the last fiscal. According to government officials, every rupee cut of excise on fuel could result in a loss of Rs 13,000 crore to the government, and instead the burden should be put on states to realign VAT rates to help ease this crisis. But with states unwilling to do this, especially in an election year and 2019 round the corner, the situation will remain at an impasse.

Politics does come before economics. Thus there is no immediate solution in sight for the government. Unless and until the geo-political scenario around Iran settles, there is not much anyone can do. Iran produces around 4 per cent of the global economic output of oil and countries will have to be wary of and prepare for US sanctions should they seek to do business with Tehran openly.

India will be at the moment turning to Russia and Europe for this. If both resist the US sanctions, there may be scope for trade opening up with Iran. However, officials stress that this will be a gradual process with everyone in a ‘wait and watch’ mode as of now. There are many possibilities on the horizon, but the one certainty is that the Indian consumer is not likely to receive much relief from rising petrol prices anytime soon. The honeymoon is over.