Government Cuts Excise Duties on Diesel and Petrol

Amidst pressures of spiralling prices of every commodity in the Indian economy, the Government of India has finally slashed the excise duties on petrol and diesel by ₹ 5 and ₹ 10 respectively. This has brought the prices of petroleum products below the psychological level of ₹ 100 in many states. It is good news for the consumers for some time. However, it would be interesting to watch how long the government would keep the prices of petroleum products below the so-called psychological level of ₹100 as the government has been pursuing a policy of continuously extracting as much taxes from petroleum products.

Considering the current economic scenario with prolonged and high wholesale as well as retail inflation, this is a delayed but welcome step. It would have been better if this decision should have been taken earlier before the consequent damages caused by high prices of petroleum products. High levels of prices have already resulted in a lot of negative consequences for the economy. It should be noted that the cost of living across the economy (rural as well as urban) has increased significantly because of high food inflation (reported as well as unreported) which in future may turn the market sentiments negative to some extent.

Theoretically as well as practically, high inflation is not good for any economy in general and the party in power in particular as it has huge economic as well as political costs for the both. So the narrative that the government has finally taken this decision under political pressures emanating from by-elections may not be out-rightly rejected. But even if the government has really woken up to respond to increasing inflationary pressures in the economy due to political reasons, it is good for the economy.

At present the Indian economy is going through a very peculiar phase. The overall inflation in the economy is very high. Unemployment rate is high. RBI may not be able to continue with an accommodative monetary policy stance for long. The stock market is bullish supported by the positive outlook about the GDP growth. Overall, the Indian economy is expected to do better than the previous year but with a disturbed supply chain. There are a lot of supply bottlenecks in the Indian economy as well as in the rest of the world. Due to the coronavirus pandemic, the global supply chain has been disrupted and the priorities and focus of the businesses have changed as a result of the new circumstances created by the pandemic. So the global supply chain network is expected to remain disturbed for quite some time and any singular effort to contain inflation wouldn’t easily fructify as the era of high inflation in the global economy is expected to remain a truth longer than the expected.

Rajeev Upadhyay

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