DNA Edit: Rise in petrol prices also means high inflation, impact on India's growth rate

The government faces a stern test as the rise in global prices for crude oil has now ensured that the low prices people were paying for petrol and diesel in India is now over. Till now the Centre had been enjoying a dream run with the prices of crude oil crashing from $113 in May 2014 to $50 in January 2015 and the prices remained low till 2018.  What this meant was that not only did people enjoy the benefits of lower petrol prices, fuel subsidies - which the government uses to keep oil prices low - were also cut ensuring the state had more liquidity to allocate the money to other necessary sectors.

The government’s challenge is all the more because India is heavily dependent on oil with 70% being imported from abroad. An increase in oil prices will lead to a rise in petrol prices which is something that the common man will not tolerate. The other problem is the rise in petrol prices will affect the economy as the transportation of all goods and services will rise. This will ensure high inflation and impact India’s growth rate. Economics aside, the rise in oil prices is all set to be a ‘hot’ political issue as political parties get set for various state elections.

The BJP must now get ready for attacks from the Opposition for fuel prices which are now already at an all time high.  India’s oil industry is heavily taxed and a cut in excise duty should be one of the measures on the anvil. But more than that, the Centre needs to persuade states to cut VAT, something which even BJP-ruled states have been reluctant to do. Unless that happens the ‘petrol’ issue will continue to haunt the BJP.