Indian middle class is hostage customer of fuel by Government of India 

Indian middle class is hostage customer of fuel by Government of India 

As fuel prices his at an all-time high of Diesel in the mid 60's and petrol in the mid 70's, the Indian population is disappointed by the BJP regime which kept circulating the idea that the Congress party was cheating the people by charging high taxes in its 2014 election campaign. But only to follow the same journey on fuel prices when it came to collecting taxes from citizens to fill up their coffers.
The citizen of Indiahas no choice but to buy from these agencies at taxes that must be considered road side robbery.

Kerela fuel price protest

The Congress and the Left-wing parties in Kerala are protesting against the rising fuel price in the state. While most political parties have stuck to conventional protesting mechanisms of raising slogans and laying siege on the road or rail lines, the Democratic Youth Federation of India (DYFI), youth wing of Communist Party Of India (CPI-M), is organising a cricket tournament in Kasargod district to protest against the rising fuel prices. Unlike other tournaments where winners are awarded cash prizes, in this tournament the winning team will bag 1.5 litres of petrol as the prize. (

Why are the prices going up?

The rise in prices is due to production cuts by both OPEC and Non-OPEC countries caused supply disruption along with unrest in some Middle Eastern countries. But prices are also high due to high taxes levied by both central and state governments. "Presently it appears that the government would rather not lower the tax rates," Care Ratings said. (

"India is a net oil importer and a sustained upside risk to crude price hike will likely have adverse macroeconomic implications, specifically in terms of a negative trade shock worsening the current account deficit and the fiscal deficit," Anis Chakravarty, Economist at Deloitte India said. A 10% increase in the fuel prices will lead to a direct increase of around 0.5% in WPI and around 0.25% in CPI. (

Petrol and diesel prices have not been hiked in the last four days but they are still at a multi-year high. The fuel prices in India has risen due to the international oil price rally since October last year. After a three-year-long low price windfall, the Narendra Modi government is facing oil as one of the biggest challenges. It is not only hurting common-man but also poses inflationary risks and adverse impact on the GDP growth. (

Tax on petrol 100% and Diesel 66%

Given the current scenario, Care Ratings said that there is a strong case for bringing petrol and diesel under the ambit of goods and services tax (GST). "Instead of the effective tax rate of 100% on petrol and 66% on diesel, GST of 90% and 80% are applied on
petrol and 60% and 53% on diesel. This is 10% and 20% reduction in
effective tax rates of 100% and 66% respectively for petrol and diesel," Care Ratings said in a report. (

"If exchange rate and dealer commission (are) to be constant, there would be a decline in the retail prices by approximately 5-10% in petrol and 4-8% in diesel," it added. If not GST, then with the crude oil price increasing, the choice is between lowering the tax rate or increasing subsidy, it said. (

Get ready for a fuel price crisis

"Crude is going to go from a glut to a shortage in the next two years," Bass, the founder and chief investment officer of Hayman Capital Management, told Richard Quest on CNNMoney's "Markets Now" on Wednesday. (

Brent crude, the global benchmark for oil, surged 3.5 percent earlier this month to $71.04 a barrel — the highest since late 2014. (

And according to U.S. government estimates, the average price of oil will rise to $2.74 per gallon this summer, an increase of 14 percent compared to last summer. (

The oil shortage is an international conspiracy

Saudi Arabia-led OPEC and Russia reached an agreement in late 2016 to pump less oil. OPEC and its allies agreed last November to extend the cuts through the end of 2018. (

The rebound in oil prices can be attributed to OPEC's efforts to limit production globally and to a decision by the United States to start exporting its own supply. (

India's financial challenges

"The fall in Indian rupee can be attributed to higher crude oil prices, widening trade deficit, and higher capital outflows," Prathamesh Mallya, an analyst at Angel Commodities Broking, said in a report on April 17. (

The Indian crude basket, the weighted average price of all the country's crude oil imports, has gone up from $52.49 in April last year to over $63 in March 2018, a rise of 22% in a year, according to government data. (

Nearly 80% of the country's fuel needs are met by imported crude oil. (

This trend of rising imports, and slow exports, she added, may push up the current account deficit, the sum of all transactions between a nation and its global trading partners, to nearly 1.9% of the gross domestic product (GDP) in financial year 2019. This essentially means India will spend substantially more dollars buying stuff from other countries than it earns from selling goods and services across borders, leading to a weaker rupee. (

However, foreign investment in Indian equities and bonds has slowed down, too. In the last three months, foreign portfolio investments stood at Rs13,260 crore, a fifth of the figure at the same time last year, data from National Securities Depository Limited show. (

RBI's record pile of Forex, but won't last forever

Even as external factors have shaken Indian authorities out of their comfort zone, the Reserve Bank of India (RBI) can take heart from its record pile of dollars to support the rupee in rainy days such as these. India's forex reserves hit an all-time high of $424.8 billion in the week ended April 06, RBI data show. However, India's ballooning dollar reserves have incurred the wrath of the Donald Trump administration. The US suspects currency manipulation by India after "net annual purchases of foreign exchange reached $56 billion in 2017, equivalent to 2.2% of GDP," according to the United States Trade Representative. This has put India on a watch list alongside China, Mexico, and Japan. All taken together, the rupee is likely to further slide to the 66.2 mark against the dollar in the near term, according to Angel Broking's Mallya. (

Taxes on fuel must be brought down

It is time to ease the pressure on the Indian taxpayer. But it is never easy to let go of money when it is coming for free. It is one thing to be in opposition and ask for reducing taxes and it is another to reduce those taxes when in power. The BJP has turned out to be no different than the Congress. The electorate will have to possibly vote for political parties that give you just specific targets, rather than some lofty dreams of what they will provide. The next general elections aren't that far.

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