It is unbelievable but true that petrol prices in India have hit the century mark, something unprecedented in the economic history of the country. This is the highest price (in adjusted terms) for fuel anywhere in the world and the NDA government headed by Narendra Modi can certainly take ‘credit’ for this ‘achievement’. Fuel prices in India are fixed on the basis of crude oil prices at the global level. During the last one month or so, prices of petrol and diesel have zoomed to new all-time highs, putting pressure on the inflationary price spiral and exerting a cascading impact on the country’s economy.

The spurt in prices of petrol and diesel will have a direct impact on the automotive sector – a large source of employment in the country — as vehicle sales may register a drop in demand. It is well-known that after petrol and diesel prices started rising in December 2020, passenger vehicle and two-wheeler sales started registering a dip from January 2021. The trend has continued in February too. The decline in demand for vehicles will have a negative impact on the country’s automobile industry and is bound to lead to widespread job losses, adding to the miseries of the low income and lower middle income groups. The public at large will also face the music as high fuel prices will push up transportation costs of people and goods, which ultimately impact citizens.

Companies engaged in logistics and transportation of goods are also expected to increase their service charges soon due to the fuel price hike. Demand for increasing product delivery rates has already put consumer-oriented companies in a tough spot. It is reported that transporters and freighters are seeking a 10 to 15 per cent increase in freight costs. Considering that most products and goods that people use on a daily basis are transported from different parts of the country, their cost is likely to rise further. Simply put, the food one orders to the vegetables and fruits one buys – everything is likely to get costlier.

Observers point out that if fuel prices remain at a high level – especially diesel – it will lead to a rise in headline inflation. In such a situation, the country’s economy is expected to witness a delay in recovery as it will directly impact consumption levels among citizens. The multi-million dollar question is: Why are fuel prices so high in India as compared to any other country? This detrimental price situation in fuel is created by the government itself through imposing very high taxes at the Central as well as state levels.

No doubt, of late global crude oil prices have been firming up. International crude oil prices, including the Indian basket of crude which comprises Oman, Dubai and Brent crude, have been rising after the Organization of the Petroleum Exporting Countries (OPEC) decided to continue with supply curbs. Being the third largest importer of oil in the world, the recent firming up international crude oil prices has severely impacted India, with its citizens having to pay exorbitantly high prices for petrol and diesel in comparison to neighbouring countries. But the increase in international crude oil prices is not the only culprit behind the exorbitant fuel prices in India. This is evident from the fact that the country’s fuel rates were significantly lower in the past even at a time when global crude oil prices were higher than current levels. Therefore, the biggest reason behind higher fuel prices in the country is the high rates of Central and state taxes.

Inflationary pressures have started building up and this will slow down the pace of recovery of an economy that was hit by the Covid-19 pandemic. Now is the time for the government to wake up and place automotive fuel under GST. This is the only immediate and effective solution for the severe all-round stress caused by the runaway rise in fuel prices.