The Hindu Business Line : De-fuelling inflation

While announcing the cuts in fuel product prices — Rs 2 per litre for petrol and Re 1 per litre for diesel — the Petroleum Minister acknowledged the role the Congress President, Mrs Sonia Gandhi, played in prompting the UPA Government to effect the changes. Fortuitous circumstances have played the most significant part in enabling Mr Murli Deora to cut fuel prices twice in three months; globally, crude oil prices had softened (though they are beginning to rise again) and through oil bonds, which have been approved, and excise duty cuts, which are to be announced in the Budget, the Government hopes to meet help ease the burden for the oil companies.

The reductions should go down well and perhaps dampen the BJP's stirrings against the general price rise. But oil prices globally tend to be fickle, hardening every time the US talks tough about one oil producer or the other, the latest being Iran. Till such time India becomes less dependent on global supplies, and that appears a long way off, it will have to live with fluctuating prices — resigned to rising prices and happy with any dip. Thursday's cuts in fuel prices will bring palpable relief to the consumer but the fact is the adverse impact of fuel prices on inflation, felt in early fiscal 2006-07, has already been mitigated, by the first cut in fuel prices in November. The inflation rate for fuel has been falling since then and stood at around 3 per cent in January 2007.

The Government has to consider a range of fiscal and speedy delivery mechanisms to tackle the current price spiral that shows little signs of abating. Some of the measures of July 2006 — encouraging imports and banning exports of wheat for example — stabilised the inflation rate for primary articles at 5.5 per cent levels. But in September the relentless march resumed, with the inflation rate for this segment peaking at 9.5 per cent in January 2007. Manufacturing too has added to the price rise, its inflation rising from 1.66 per cent in March 2006 to 5.65 per cent in mid-January 2007. Appeals to industry to reduce prices have had as little effect; it is clear that only the heat of competitive pressure will keep the lid on prices. The Budget now offers North Block the best platform for a concerted and drastic reduction in Customs duties across the board to enable the smooth flow of imports and thus provide that extra source of competition. With buoyant direct tax revenues, a drastic reduction in peak Customs duties on foodgrains, edible oils, capital goods should not harm the exchequer. Having woken late to the crisis, the Centre must act quickly before it gets out of hand.

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