Fuel prices are rising in the country from the past few days despite strong protests from the opposition and public anger being bursted against the government in few places. But the government is not in the mood to reduce prices of fuel.
First let’s understand that the price of fuel depends on 2-3 factors, which are, the price of crude oil in international market,the cost of refining the crude oil transportation charges of oil market companies in carrying the refined oil to your nearest fuel station.Now when the fuel arrives at fuel station then first dealer cuts its commission which is now 3.69 rs per litre at delhi now.
Now the main role of central and state government starts from here. The central government put excise duty on fuel and the respective state government put VAT on it .So retail customers pay two third of the fuel price in the form of taxes to the government.
The reason for the all time high fuel prices is that due to pandemic last year government revenue has decreased from other source of indirect tax(GST,corporate tax) while the expenditure of government has increased in pandemic period.so in order to reduce the fiscal deficit and increase government revenue fuel prices are not coming down despite the public outcry. Since the fuel prices are not controlled under GST so the government does not have to consult the GST council before increasing the taxes and taxes are levied by the government according to the situation.
EFFECT OF FUEL HIKE ON ECONOMY
From 15 june 2017 fuel price are decided on each day at 6 AM.Increasing the fuel prices will have a direct impact on inflation.since country major transportation is dependent on diesel so the hike in price of diesel will surely increase the prices in each sector which ultimately will be the cause for national inflation.Time when SME and small business are struggling due to pandemic it will be a difficult for average indian to survive especially for migrant workers and employees in the unorganised sector.
In such condition if inflation increase at this time then consumption of people will decrease which ultimately will delay economic recovery of common people that is being severely affected due to pandemic.Cost of daily uses goods which are being transported from different parts of the country will be increased, companies involved in logistics sector,public transport, fare of buses and trains will also be affected by fuel price.
Measures that can be taken
If Government wants then it can surely decrease the fuel prices and can take steps to increase the direct taxes on business whose income have increased or that have not been affected by pandemic.It can also increase corporate tax and decrease the tax on diesel to avoid inflation so common public may not be affected.For short period government can also cut its extra expenditure to gain money which it may lost due to reduction on taxes on fuel price.
ROLE OF OPPOSITION
One major reason for the fuel hike is weak oppose from other major political parties.Central government knows that opposition is scattered and have less MP in both houses so government is taking advantage of it.Protest from opposition political parties and general public may make government thinks to reduce taxes on fuel and covers its fiscal deficit caused due to pandemic from other tax sources and reducing its extra expenditure.
Weak and scattered opposition is also one reason for ruling government for not reducing taxes on fuel inspire being possibility of national inflation. Opposition can ask to reduce taxes and lead nationwide protest which could make ruling government consider to reduce fuel taxes.