As Narendra Modi-led NDA Government launches an all-out war against inflation, the common man needs to know that it is not the Central Government but State Governments taxes that are the biggest reason for the steep rise in domestic fuel prices
In last few days, inflation has been the focus of numerous discussions in television debates, oped columns and of course India’s debilitated Opposition has used inflation as a tool to target the Modi government. The truth is that the Modi government has waged a relentless war against inflation and has been very successful too.
Indeed,Consumer Price Index (CPI) or retail inflation as it is called in layman’s language rose to a 6-month high of 6.3% in May 2021,compared to 4.23% in April. Core inflation rose from 5.4% in April,to 6.55% in May. RBI has been tasked with maintaining retail inflation at 4%,with margin of 2% on either side of the band,until March 2026.
India’s retail inflation jumped to 6.3% in May primarily, on account of higher food and energy prices, as per data released by the Ministry of Statistics and Programme Implementation.
Food inflation accelerated to 5.01% in May, as compared to 1.96% in April,within the CPI basket,while fuel inflation in May 2021 rose to 11.58%, from 7.91%,in April 2021.
Interestingly, vegetable inflation was a negative 1.92% in May,compared to a negative 14.18% in April 2021. Record food grain production in FY21 at over 303 million tonnes with record procurement by the Modi government,has capped any rise in vegetable prices.The moot question then is,while vegetable prices remained subdued,why did retail inflation in May rise sharply? Why did food inflation jump? Large sections of India’s ignorant media will not tell you that while prima facie a 6.3% rise in retail inflation may look high, India has actually done a fabulous job in curtailing runaway prices.What media is not telling you is the fact that,globally food prices measured by FAO Food Price Index has actually risen by a huge 39.7% in May 2021,compared to May 2020.Similarly,global Cereal inflation is up 36.6% in May,year on year (YoY).Again,global Wheat prices in May 2021 have risen by a sharp 28.5% over May 2020,while dairy product prices internationally, have surged by 28%.,The massive surge in food prices is an all pervasive global phenomena,due to severe drought and inclement weather in large parts of the world.Hence, to single out India,which has actually capped retail inflation in single digits,is both unfair and unacceptable.
The RBI, which mainly factors in retail inflation while arriving at its monetary policy, had left the key interest rate unchanged earlier this month.The central bank has projected the CPI inflation at 5.1% during 2021-22; 5.2% in Q1; 5.4% in Q2; 4.7% in Q3; and 5.3% in Q4 of 2021- 22.Wholesale price-based inflation too accelerated to a record high of 12.94% in May 2021,led by base effect,given that in May 2020,WPI was minus 3.37%.Rising Crude Oil prices,globally, that filtered down to higher domestic prices,via imports,added to the uptick in WPI.In April 2021, WPI inflation was 10.49%,again driven by base effect, given that in April 2020, WPI was minus 1.57%..
A weaker dollar is also helping to push oil higher. Tight supply and strong demand from USA and China could see oil climb to $80 a barrel in the next few months,in the absence of Iranian supplies. New nuclear violations may derail Iran’s return to global oil markets.
Fuel prices have risen not only in India,but elsewhere too. Since more than 80% of India’s oil demand is met via imports,any surge in global Brent crude price obviously has a sizeable impact on India too,as both petrol and diesel are now fully deregulated. India’s ignorant opposition has often alleged that under the inept Congress led UPA-2, despite elevated Brent prices globally, local fuel prices were much lower. Well,that is because,fuel prices were only partially decontrolled under the inefficient, Congress- led UPA-2. It was the NDA government that took the unpopular but bold and long overdue decision of decontrolling diesel prices too, in October 2014.
Hence,comparing fuel price movements under the Modi government,with the erstwhile lethargic Congress regime is unfair. Also,don’t forget that,the previous,Congress-led UPA government took loans by purchasing oil bonds of Rs 1.44 lakh crore,that the Narendra Modi-led NDA government inherited and paid. The Central Government also paid Rs 70,000 crore on interest part alone,which means,in total,it discharged debt obligations of the earlier Congress regime, by repaying over Rs 2 lakh crore. To nail the misinformation surrounding domestic fuel pricing,it is best to look at this real time,example- petrol prices in Mumbai a few weeks back hit Rs 100 per litre. Of this Rs 100, the basic rate is Rs 32.97 per litre; Central government tax is Rs 21.58; State government VAT, surcharges and levies are Rs 41.67,per litre; distributor margins work out to Rs 3.78,per litre. Clearly,it is not the Central government, but State government’s taxes that are the biggest component of petrol prices and also the biggest reason,for the steep rise in domestic fuel prices. Effectively speaking,State government taxes account for 41.67% of the final petrol price,whereas Central government taxes account for only 21.58% of the final petrol price,per litre. Hence,before pointing fingers at the Modi government, opposition leaders like a clueless Rahul Gandhi,whose party,the Congress,is a vital part of the ruling alliance in Maharashtra, would do well to do some number crunching! In fact,along with VAT,disaster management cess and highway liquor ban cess,the net share of State taxes in fuel prices,in Maharashtra is almost 50% and ditto is the case with Rajasthan,another Congress ruled State,with the highest VAT. India imports almost no petrol or diesel. It imports crude. But the price we pay for fuel is based largely on Import Parity Price or the price we would pay, if India were to be actually importing petrol or diesel.
India registered a record foodgrain production of over
303 million tonnes in FY2 under the NDA Government
303 million tonnes in FY2 under the NDA Government
Recently there has been a surge in edible oil prices,globally.Since India imports between 55- 70% of edible oils like palm oil,soybean oil and sunflower oil,domestic cooking Oil prices have risen,too. Argentina,one of the biggest producers of Soybean,faced huge crop losses after a severe drought.Malaysia and Indonesia curtailed exports of Palm Oil to India and other countries,after a big rise in local demand,due to a change in bio-fuel norms in these countries.
The good news is that,the area under oilseeds has expanded in India and output is expected to be higher than the previous year. The total acreage under Oilseeds increased by 18 lakh hectares or 10% during the 2020 Kharif season, aided by the increased availability of labour, after migrants workers returned to their home in rural areas. The acreage for groundnut rose 30% and for soyabean by about 7%. Similarly, the acreage under Oilseeds in the 2020-21 Rabi season was up by 4%. Mustard is the primary Oilseed grown during the winter cropping season and the area under the crop is also up 5%.According to the third advance estimates of production for the 2020-21 agriculture season,Oilseed output expanded by 10% to 365.65 lakh tonnes, with the Soybean crop rising almost 20% and mustard by 10%. Hence,cooking Oil prices should come down,going forward.
India,under PM Modi, has the enviable accomplishment and unique distinction of already vaccinating over 255 million people with the first dose of Covid vaccine,in what is clearly the world’s fastest and most ambitious vaccination drive.By December 2021 or even earlier,the entire adult population of India will be vaccinated.
The Union Budget for 2021-22 set aside Rs 35,000 crore for the covid vaccine,though the actual cost that will be borne by the Modi government eventually, could be much higher,at anywhere between Rs 45,000 to Rs 55,000 crore. Allocation of Rs Rs 2.23 lakh crore for health,is a 137% jump in 2021-22, over 2020-21.
Again, Rs 1.18 lakh crore for road infrastructure, Rs 1.10 lakh crore for railways,an outlay of Rs 3.6 lakh crore for the power sector and Rs 16.5 lakh crore towards agriculture credit outlay in the Union Budget, showcase how the Modi government is spending money judiciously,towards a healthier,fitter and better India. PM Modi is not someone who indulges in profligate spending.Every penny spent by him is money wisely spent. For example, defence allocation at Rs 4.78 lakh crore,which is up 19% in FY22,over FY21,is aimed at a more safer and secure India. Hence,allegations that resources raised via fuel taxes are being frittered away,are absolutely baseless. To cut to the chase,India,under PM Modi, is planning to increase natural gas consumption by 2.5x, as part of the energy mix,to 15.5% by 2030, from the current level of 6.2%. The ongoing transition from an oil economy to a gas economy is steadfastly underway. Over 70% of India’s population in over 400 districts will have city gas distribution facility, soon.Only 25 lakh households in India had access to piped natural gas in 2014 but thanks to the Modi government’s persistent efforts, that figure more than quadrupled by 2021.Again,India only had 947 CNG stations in 2014,that number rose to 1470 stations in 2018 and is set to scale up to a massive 10,000 CNG stations in the next few years.Since CNG is anywhere between 45-60% cheaper compared to petrol and diesel,this will make India self reliant,in more ways than one. Also,financial assistance is being extended by way of interest subvention for 5 years at 6% rate of interest against the loans availed by sugar mills and distilleries from banks, for setting up their projects.The existing installed capacity of molasses-based distilleries has reached a massive, 426 crore litres.In 2020-21, the target has been, to supply 325 crore litres of ethanol to OMCs for achieving 8.5% blending.In next few years, with 20% ethanol blending with Petrol, the Modi government will be able to significantly reduce import of crude Oil, in a big step towards being Atma Nirbhar in the petroleum sector and thereby sustainably reducing fuel inflation.
(The writer is an Economist, National Spokesperson of BJP and author of the bestseller, “Truth & Dare—The Modi Dynamic”)