Spurt in fuel prices

Sir,
The unusual spurt in diesel and petrol prices as a result of deadly cocktail of surging global oil prices and falling rupee value signals danger to the economy, now on the path to recovery clocking 8 per cent GDP in the first quarter of this financial year.
Surging fuel prices have the potential to destablise the economy as it is inflationary, can widen current account deficit, already hit by falling rupee and impact strained fiscal deficit if tax cuts are resorted to rein-in prices. It is certainly a dilemma for the Narendra Modi Government, which appears to have not managed fuel prices well when compared to the previous UPA Government.
Notwithstanding surging global oil prices and falling rupee, one of the reasons for high domestic fuel prices is the high taxes both at the centre and states as petrol and diesel are considered to be milch cows for revenue mop-up.
It was time India looked at the possibility of bringing petrol and diesel under Goods and Services Tax so that incidence of tax is reduced and cascading effects minimized for the benefit of common man. Also it is time the government explored opportunities of getting tax revenue. Widening tax base and taxing rich farmers’ income could be some of the options. Of course, keeping tax rates high on tobacco and alcohol is not that exploitative as they are sin goods injurious to health. But keeping the tax rates high on fuel is a sin that hits people in every walk of life, particularly the poor.
K R Sudhaman
on e-mail

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