Drop in Fuel Prices is a Shrewd Decision In Step

The Union Finance Minister Arun Jaitley on October 4, 2018, has declared that the oil marketing companies will absorb ₹1 of the cut and government ₹1.5 to account for a cumulative ₹ 2.5 drop in the fuel prices. Further, he would write to all the states, inviting them to match the ₹2.5 cut with an equal cut in their corresponding state VAT rates on fuel.

Undeniably, there has been a dire need for the reduction of the fuel prices, straightaway. As on date, the crude oil in the international market has cut across $86 a barrel — the greater it has been in the last four years. Besides, the interest rates in the U.S. have also been raised to 3.2%, the maximum ever.If we chirp to be hooked on to this issue intensely that why the fuel prices have been on a rise over a period of time, we can become conscious that the problem lies in the international trade in crude oil, which is carried out through the US financial institutions. Just to avoid this and to continue to import oil from Iran, many countries such as Britain, China, Germany, Russia, and France, are mulling over to create an exclusive financial arrangement to route payments by immediately circumventing the US financial system.

Even for India, there is a need to consider a parallel postern. Such a gateway would not only condense the US sanctions to be ineffectual but also disrupt the starring role of the US dollar as the worldwide currency. Another reason for the increase in the price of petrol is the fall of the rupee against the US dollar. As there is an interconnection between the Indian Rupee and the US dollar in the stuff concerning the fuel prices, perceptibly the price of petrol upsurges in India if the value of the rupee decays against the US $.Now, there arises an inquiry that — why the rupee is weakening? The reason is associated with the import and export rules. As of now, India is importing more than the exports. It is imperative for India to pay the dues in US $ for the dollar being the global currency. The more imports mean more outgoings of US $ alongside the fewer exports that ultimately result in fewer inwards of US $.

Despite the fact that the fuel prices would be cut, it would have only a marginal impact on the fiscal deficit i.e less than 0.05% of the fiscal deficit for the reason that the excise duty cut would be well-adjusted by higher direct tax collections. The same was pronounced by the Union Minister.Even though it is not said, the drop in fuel prices is a squat spell affair. After increasing the fuel prices by 15% or so in less than four months, if the same is reduced by 2%, it degrees to a meager drop. Also, it looks as if the government is simply icing an injury without taking any serious action to reduce the fuel prices, eternally. There is a great need that the presiding governments should grasp the rippling effect of the rise in petrol prices. The prices of all the commodities will increase compliant with the rise in the petroleum products. Ultimately, the burden will be on the common man, who lives on the daily wages. Due to the hidden threats imposed by the rise in fuel prices, the government needs to arrive at a perpetual policy, instead of considering the instantaneous measures whose impact is not seen over a period of time.

-Dr. Suman Kumar Kasturi