India needs to check rising inflation

The Narendra Modi administration on Sunday brought down retail fuel prices slightly in a bid to check inflation, which now stands at an eight-year high of 7.9 per cent.

Fuel prices are at present fixed by oil companies on a day-to-day basis. Although the government exercises no control over the process, the companies are mindful of the government’s interest in the matter. While election campaigns are on, the companies suspend day-to-day price revision so as not to hurt the ruling party’s interests.

A substantial part of the price the consumer pays for petrol and diesel actually goes to the Central and state governments in the form of excise duties and other levies.

With the companies revising prices on about 20 days in a month, oil prices have been rising for some time. This was pushing up transportation costs, which led to a rise in the prices of commodities. Food items have been among the worst hit.

Against this background, consumers were demanding that the Central and state governments forego a share of their income from oil levies to relieve their people’s distress. They were not responsive to the demand until last week.

In a tweet late on Saturday, Finance Minister Nirmala Sitharaman announced the Centre’s decision to reduce excise duties on petrol and diesel. This brought down the petrol price by Rs. 9.50 a litre and the diesel price by Rs. 7 a litre.

Ms. Sitharaman said the duty cut was a part of various steps taken by the Central government to cushion the impact of price rise on the poor. She appealed to the state governments to similarly forego a part of their income from oil levies. There was no immediate response from them.

The cut in central excise duty on petrol is Rs.8 per litre and that on diesel Rs.6 per litre. The government says this will result in a drop of Rs.1,000 billion in its revenue.

In an attempt to provide some relief directly to households, the Centre has offered a subsidy of Rs.200 on up to 12 gas cylinders a year to more than 90 million low-income families. Currently, the price of cooking gas rules above Rs. 1,000 a cylinder. The subsidy thus amounts to almost 20 per cent to a family that can limit its consumption to one cylinder a month.

The relief the government has announced may turn out to be short-lived. If oil companies continue to revise prices at the same rate as in recent weeks, its effect may be wiped out altogether in just a month.

Surely the government needs to take a long-term view of the matter.

The basic problem before the country is rising inflation. It has come even as the government was making efforts to revive the economy, which had taken a hard beating in the wake of the COVID-19 pandemic.

According to a recent sample survey, cited by some media outlets, as many as 70 per cent of the households in the country reported experiencing a jump of more than 10 per cent in the family budget in the past three months. About 55 per cent of the respondents expected a similar jump in the next three months as well.

Earlier this month, the Reserve Bank of India (RBI) raised the repo rate as an anti-inflationary measure. This in turn led to a rise in the interest rates of commercial banks. The basic objective of the measure is to make borrowing costlier and saving attractive.

Experts are of the opinion that the emerging situation calls for action beyond the RBI’s monetary policy framework.

There are times when governments can best help the poor by putting food or cash in the hands of people. We may well be moving into such a phase.

In the recent past, on such occasions, the Central government has been slow in responding. A few state governments have done better.

Both the Centre and the states need to gear up and be ready to meet the emerging situation, which will certainly pose a big challenge.