Oil turmoil

Expectations of recovery of the Indian economy after over a year and half of lockdown throughout India has been put on the backburner after prices of crude oil and gas began to rise rapidly since February following the Russian invasion of Ukraine. In metro cities, petrol and diesel prices are set to soar again by 80 paise per litre. The price of domestic cooking gas was hiked by Rs 50 when a 14.2-kg non-subsidised LPG cylinder will now cost Rs 949.50 in Delhi. The prices of global crude had been on steady rise since the end of 2021 but the government had held back the price in view of the assembly elections in five states despite the imminent impact by the Russian invasion. The resumption of fuel price hikes has fanned concerns of stoking inflation, which is already above the targeted 6 per cent level. It may be recalled that the government of India had attempted to project itself as people-friendly when it reduced excise duty on petrol and diesel substantially. With crude oil prices crossing $100 per barrel after more than seven years, an oil shock is on its way. International oil prices started rising again this year and jumped to a 14-year high of $140 per barrel earlier in March. Brent was trading at USD 118.59 per barrel . To compound things, the Indian rupee tumbled against the US dollar, making imports costlier. India relies on overseas purchases to meet about 85 per cent of its oil requirement, making it one of the most vulnerable in Asia to higher oil prices. A gas shock too, for close to half the natural gas that is consumed in the country is imported. Coal also comes into the reckoning, for (as with oil) India is its third-largest importer. There will be wider consequences, though. Raw material costs will go up virtually across the board for industry, and fuel costs for electricity-generating companies. The rising prices of fuel has pushed up prices of various commodities owing to increase in freight or transport charges. Besides the low income group, labourers and those who lost jobs are not even able to buy enough daily food intake. The chief of the World Bank David Malpass has said that the war in Ukraine is a “economic catastrophe” for the world that will cut global economic growth. He said that the fighting comes “at a wrong time” because inflation was already rising globally. True that such issues are not political but they are more often than not, politicized by political parties. Every political party does it. The increased levies on petrol and diesel per litre respectively is just the latest in a long series of fuel tax hikes since the onset of the COVID-19 pandemic. This has made India now ranked among the world’s most taxed consumers of transport fuel. Central and state taxes accounted for over 69% of retail fuel and handily beating even highly-taxed European economies; indeed an achievement of sorts.