Earlier this month, the International Monetory Fund in its global prospects and policies survey stated that the global economic recovery continues amid a resurging pandemic that poses unique policy challenges. The question is how India will rationalize its demand-supply deficit in this bounce back economic trend. “Inflation has increased markedly in the USA and some emerging market economies. As restrictions are relaxed, demand has accelerated, but supply has been slower to respond,” reads the report of World Economic Outlook (WEO), October 2021. Inflation in India, caused by price hike in fuels, has been rising, affecting the poor and middle classes alike. The government has relentlessly increased the taxes on fuel which are ultimately hitting the pockets of the common people. Prof Gaurav Vallabh, national spokesperson of Congress, told The Sunday Guardian: “When the basic fundamental issues of economics were not known to the ministers, then what kind of governance can they give.” Reacting to the ruling party minister who elucidated that fuel prices will not impact the common people, he said: “When the government says that 95% of people have no effect from price hike, you can imagine at what level this government is functioning.” UP minister Upendra Tiwari had defended the fuel price hike by saying that “95% people have no use for petrol”. He had added: “There are just a handful of people who travel in four-wheel vehicles and use petrol. At present, 95% people don’t need petrol.” When common people get to save, only then can they buy more miscellaneous products. Increase in sales of businesses will speed up the profits of MSMEs (micro, small and medium enterprises), and increase in India’s businesses will again benefit the government as they will be able to collect more taxes from the MSMEs and moreover, there will be more liquidity in the market bringing in more people to spend their incomes.
Rise in petrol prices directly impacts commodity rates and that, in turn, drains more money of consumers even when there is no real increase in their salaries or profits. Reacting to the BJP minister, Vallabh said, “Diesel prices affect the entire commodity prices because of the high freight charges. Diesel prices affect agriculture costs, the petrol prices affect the middle income groups’ and lower income groups’ budget, so he should understand this and just try to answer the questions which we have raised.”
Petrol is over the Rs 100 mark in all major cities and there is fear among consumers that with brent prices going up, petrol and diesel prices may reach even more record numbers, “In the last seven years, Rs 23 lakh crore was collected in the form of excise duty by the Government of India on petrol and diesel, where is that money?” Prof Vallabh asked, seeking answers from the government. While the government contends that taxes collected from fuel are used in multiple welfare schemes of the country, immediate welfare seems a far cry. “From 1st January till date, there has been a 29% hike in diesel and petrol by 27%, why? Have our salaries increased by those percentages, has anyone’s business or profit increased by those percentages?” Prof Vallabh asked. He said that this government is not pushing for the welfare of people and is also not worried about the lagging economy, rather they are working on three Ds—Divide and rule, Distract and rule, Distort and rule.
The Indian economy was already headed south even before the pandemic had disrupted the markets worldwide. The state of the Indian economy started worsening after demonitization and hit the lowest of 3.1% in March 2020 before the pandemic. The pandemic slowed down everything and now with the reopening of markets, the supply side has been languid.