Hiking fuel prices

Government has increased the price of petrol byRs.2.61, of high speed diesel by Rs.2.25 and light diesel by Rs.208 per liter. The pretext for this increase in the prices of petroleum products seems to be the rise in price of crude oil from$54 to $64 per barrel in the international market. But if past experience is any guide the prices of these products and tariffs of energy inputs used to be jacked up to fill widening fiscal hole.

The petroleum products like high speed diesel is not only used as fuel by the public transport but a number of private thermal plants are being run by it. The price increase at such a high scale will have a multiplier effect on a wide range of consumers’ goods the rates of which have already gone up beyond the purchasing power of low and middle income people. It will further depress the productive capacity of the economy which is gradually reviving after a long spell of recession. High fuel prices will lead to another power tariff increase, making our exports less competitive.

It may be recalled that during 2006-07 the price of crude oil has gone up to $120 in the international market but the government refrained from increasing fuel prices because of its adverse impact on production and exports which maintained economic growth rate above 6 percent. There are a number of non-inflationary untapped sources of revenue generation to narrow the resource gap. Imposition of agriculture income tax on owners of big land holding and income earned by lawyers are the buoyant sources for filling fiscal gap.