Hike In Fuel Prices Temporary, Could Be Eased Once Revenue Collection Improves: Experts

The recent spurt in diesel price has hit the transport vehicle sector and industries relying on this petroleum product for operations. This coming at a time when the international petroleum prices are at their lowest, to which our domestic prices are linked. There has been a sharp hike in the domestic price because both the central and state governments, like Delhi, are trying to shore up revenue.

D.K. Srivastava, Chief Policy Advisor, EY India, points out that due to Covid-19 lockdown direct and indirect taxes are hardly contributing any revenue to the exchequer. “Petroleum is the only source through which some revenue can be grabbed,” says Srivastava, adding that once revenue collection improves in a couple of months, the prices of petroleum products could be eased.

Others too agree that the hike in diesel and petrol prices will be temporary. Anil Bhardwaj, Secretary General, Federation of Indian MSMEs says the hike in diesel prices in India is by over 22 per cent in the last three months. “It is pinching for sure as it is used as raw material in many industries including as furnace oil and for operating generators, and transport operations. But people are not very worried as most units are still operating at low capacity.” The main concern for the industries at this juncture is the low demand. Another concern of market experts and economists is that the hike in transport fuel will lead to inflation and therefore will impact profitability of companies.

According to GlobalPetrolPrices.com, India is among 56 countries that has seen a rise in diesel prices. On the 163 countries reviewed, there was a decrease in prices in 12 countries over the last three months and no change in 97 countries. The gasoline price changes varied from -17.4% (Botswana) to 31.7% (Saudi Arabia).

N.R. Bhanumurthy, economist and vice chancellor, BASE University, says that while higher petroleum prices, with nearly two-thirds of it constituting government levies, would provide short term comfort for the central and state governments, it is bound to impact transport sector. It comes at a time when normal economic activity is expected to take at least three months to pick up.

The hike may not impact the agriculture sector too much, says Bhanumurthy, as a normal monsoon will lessen the dependency on farmers on diesel operated water pumps. The main concern, say experts, is inflation.

In a span of 22 days, the price of petrol has gone up by ₹9.17 a litre while that of diesel has gone up by a higher margin of ₹11.14 a litre. While diesel price had been hiked on 22 occasions since June 7, petrol price had been raised on 21 occasions. The price of diesel surged above that of petrol in the national capital during this period.

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