Adding fuel to fire

Adding fuel to fire

The hike in prices of diesel, kerosene and LPG, announced by the government, will make the common man’s life more unbearable and stoke further the inflationary pressures in the economy.  The prices of diesel have been raised by Rs 3 and Rs 2, respectively, per litre, and that of cooking gas by Rs 50 per cylinder. The 30 per cent VAT on diesel and 5 per cent VAT on kerosene will mean that the burden on the consumser will be higher. Petrol prices were increased by over Rs 5 only about a month ago. They have been hiked 10 times in the last one year and the cumulative impact of the hike in prices of oil products on home budgets of all people, from the poor through the middle class to the rich, will be substantial.

The government’s claim that the price hikes are only minimal is unacceptable. Increases in the prices of all products are more than 10 per cent. In the case of kerosene the hike will hit the poorest sections of people. LPG is an essential commodity for all sections of people. The diesel price hike will have the most damaging effect because the cascading effect will be felt on all sectors of the economy. The prices of all goods and commodities, including vegetables and food articles, will go up because transporting costs will increase. Travel and public transport will become more expensive. Some public transport undertakings have already increased their fares. It is estimated that the impact on inflation will be of the degree of 60-100 basis points. This will mean that it will soon be in two digits. While the Reserve Bank is on one side trying to bring down inflation through interest rate hikes, the government is fuelling it though price hikes of oil products.

While it is true that crude prices are ruling high, the government can absorb the high costs by reducing the duties and levies and prevent the costs from being passed on to the people. Neither the Central government nor state governments are willing to do this. The under-recoveries of oil marketing companies are high but this has much to do with their operational inefficiencies and methods of financial computation. It is wrong to make the common people pay for these inefficiencies. The government’s action has not been supported even by all the UPA constituents and it will have to face strong public resentment over it.

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