Prices in fuel expenses have pushed up the prices of fruits, vegetables, and bottled milk, putting citizens at a disadvantage.
Siddheshwar Yadav, a Mumbai-based auto-rickshaw driver, has seen his average monthly income drop by 40% in the last month as India’s inflation approaches a painful 15 month high, due to a combination of increased gasoline expenses and auto-rickshaw rents.
Yadav’s monthly income has been reduced to 9,000 rupees ($118) from 15,000 rupees ($196.8) while working a 12-hour shift every day of the month. With the government preventing drivers from boosting meter prices and many commuters opting for public transportation to save a few rupees, Yadav is one of many drivers whose earnings have decreased even as all other expenditures have risen.
“Things have got a lot more complicated in the last 20 to 25 days,” Yadav added. Not only has gasoline increased in price, but everything has increased in price, including veggies and foodstuffs. Our beginning fare on the meter hasn’t changed in years. Even our labor unions have done nothing to address the situation. It’s a challenging position.”
Since March 22, when oil marketing organizations began to pass on the effect of a spike, fuel prices had jumped by 26% global crude oil prices, following Russia’s invasion of Ukraine, to its customers in the form of back-to-back price hikes. Fuel price increases have crept into food and other essentials such as packaged milk, edible oil, and wheat, among other things, causing household budgets to become out of whack.
With retail inflation at record highs, not only ordinary Indians but also small and medium-sized businesses are beginning to feel the pain. While the federal government has been chastised for the hefty taxes it slaps on gasoline. New Delhi has shown no signs of giving up this key source of money.
People like Yadav are suffering as a result of this. He claims that he used to be able to spend nearly 11,000 rupees ($144.3) on his family in Uttar Pradesh, India, every month after spending lavishly on food and lodging in the city, but that sum has now fallen to just 7,000 rupees ($91.8).
Effects of Spill-over
Petrol and diesel prices in Mumbai were 120.51 rupees ($1.57) and 104.77 rupees ($1.37) on Sunday, respectively, up 26% and 21% since March 22, when the Indian government resumed price hikes after a four-month pause.
Because most things are transported throughout the country using gasoline, the dramatic increase in prices is influencing the costs of other products and sectors. Fruits and vegetables, including packaged goods such as milk, coffee powder, and instant noodles, have all increased in price.
Packaged commodity prices rarely come down once they’ve gone up,” says Kumar Rajagopalan, CEO of the Retail Board of India. The new benchmark will be the higher price.”
Smaller stores and micro-enterprises, on the other hand, have failed to pass on the higher costs to their customers, fearing that they will lose business.
Apart from the dramatic rise in crude oil costs, Vatsal Mody, a synthetic fabric exporter based in the eastern Indian city of Surat whose principal raw material is crude oil, claimed there has been an “unrealistic” hike in freight and ship container charges. According to him, freight charges have increased from $5 per cubic meter before the pandemic to $15 in November and December last year and $25 now. However, as he bids for new orders, he is just adding half of that price increase. The exporter is concerned that if the price rises any further, he would lose market share.
The fuel dynamics in India
To recalibrate pump prices every day, these companies usually use a 15-day average of global benchmark prices. However, following a price increase on November 4, they did not raise rates for four months at the government’s request, despite world crude oil prices rising 45 percent during that time, from $81.6 to $118.5 per barrel. As a result, India’s recent increase in pump prices is simply the country catching up with global commodity costs.
However, these costs include a portion of state and federal taxes, which are a vital source of government revenue.
According to a survey by the Observer Research Foundation (ORF), a New Delhi thinks tank, the government-imposed tax on petrol increased by more than 200 percent between March 2014 and October 2021, while the cost of diesel increased by more than 600 percent.
“Since 2014, the diesel and gasoline taxes have been significantly raised. So that’s coming back to bite us now,” Lydia Powell, an ORF distinguished fellow, and co-author of the paper, told the reporters.
Since November, the federal government’s taxes on gasoline and diesel have been 26.5 % and 22.5 % per liter, respectively, up from pre-pandemic levels of 40 percent for petrol and 38 percent for diesel. In addition, states levy a tax that can range from 12% to 22%.
“Both the federal and state governments are passing charges, one claiming that the other should lower taxes, but no one is doing so because it is a significant source of revenue. Overall, I don’t see a significant reduction in taxes, and I believe people should expect higher pricing,” Powell concluded.
While there has been speculation of India receiving inexpensive Russian oil, the chances of this happening are less because Indian companies are not able to process Russian crude.
All of this has contributed to rising retail inflation, which hit a 15-month high of 6.95 percent in March, breaking the Reserve Bank of India’s medium-term target range of 2-6 percent for the third month in a row.
The government, on the other hand, is opposed to the concept of cutting taxes anytime soon since it wants to spend 7.5 trillion rupees ($98.3 billion) on capital investment this fiscal year, the highest allocation in nearly two decades.
If you lower your excise tax but have to pay more fertilizer subsidies and borrow more, that’s a bad deal, you end up pushing the rate up,” said Abheek Barua, chief economist and vice president of HDFC Bank.
The increased spending would widen New Delhi’s budget deficit, making it more costly to close the gap.
“Even if you explain macroeconomic consequences very simply, they are pretty complex.” “It is not a one-off decision on whether or not to reduce fuel excise.”
Back on the streets of Mumbai, autorickshaw driver Yadav is preoccupied with his complicated financial concerns.
He told the reporters, “First there was Corona, and then, this inflation.” “I understand that this is due to the Russia-Ukraine conflict, but isn’t there anything the government can do to help?” “My son married last year, and my daughter is planning to marry this year. My financial stability should not be jeopardized at this time.”