After a prolonged delay, Prime Minister Narendra Modi-led Union government decided to reduce the excise duties levied on oil to reduce the skyrocketing petrol and diesel prices. On Saturday, May 21st 2022, Union Finance Minister Nirmala Sitharaman announced the reduction of excise duty on petrol by Rs 8 per litre and diesel by Rs 6 per litre. This will reduce Rs 9.5 per litre on petrol price and Rs 7 a litre on diesel price after considering the impact on other levies. It’s Modi’s delayed attempt to curb the current skyrocketing inflation.
Petrol and diesel prices were Rs 105.41 and Rs 96.67 a litre, respectively, in Delhi on May 20th 2022. Following the reduction in the central excise duties, the petrol price in Delhi became Rs 95.91 per litre, and the diesel price became Rs 89.67 per litre from Sunday, May 22nd 2022, onwards. However, even at this rate, the fuel prices remain considerably high, especially when the consumer price index (CPI) inflation shot up to 7.79% in April 2022 from 6.2% in March, the highest since May 2014. The reduction is too less and too late in this precarious situation.
Sitharaman has also announced a subsidy of Rs 200 per liquified petroleum gas (LPG) cylinder for the controversial Pradhan Mantri Ujjwala Yojana (PMUY) beneficiaries. They will get this subsidy on 12 LPG (cooking gas) cylinders a year. Under the PMUY, women below the poverty line (BPL) are offered free LPG connections, but they have to refill their cylinders at the market rates. The market price of an LPG cylinder (14.2 kg) in Delhi was Rs 999.50 on May 20th 2022. The PMUY beneficiaries will have to pay Rs 799.50 for an LPG cylinder in Delhi.
At a time when food inflation reached its peak—8.38% in April 2022—while unemployment remains high at 7.3%, paying Rs 799 for an LPG cylinder refill is difficult for the 90m women belonging to the BPL category who have become PMUY beneficiaries since Modi launched the programme in 2016. From 2018 onwards, it was found that most PMUY beneficiary women couldn’t refill their cylinders due to high LPG prices. Over 9m women couldn’t refill their first cylinders in 2021-22. Since 2014, the Modi regime started reducing subsidies on LPG and made it zero within a few years.
Despite cutting down subsidies and allowing the unemployment situation to worsen, the Modi regime dares to blame Russia’s special military operations in Ukraine for the spiralling inflation in India. Parroting Modi’s line, Sitharaman blamed the “global supply-chain disruption” for the rise in India’s CPI inflation and wholesale price index (WPI). She claimed that the Modi regime is concerned for the poor and will take appropriate steps to tackle the menace. However, nothing has materialised on the ground. In this scenario, it’s imperative to comprehend the reason behind India’s spiralling inflation.
Food price inflation causes
While the food prices have been rising for years, they spiked unprecedently in March-April 2022. The Modi regime blamed the Ukraine war for it. However, India’s domestic food market has been immune from global supply-chain disruption. There was bumper production in the crop year 2021-22. Kharif production was 150.5m tonnes, more than 149.56m tonnes in 2020-21. There was a record cultivation of 107.04m tonnes of rice during the 2021-22 Kharif season. The sowing area was 0.2% higher at 40.96m hectares on September 17th 2021, vis-à-vis the area sown in 2020. There was an 8.7% increase in pulse production in 2021-22.
In the 2022-23 crop year, the government has set a target of 328m tonnes of food grain, out of which 163.15m tonnes are for the Kharif and 164.85m tonnes for the Rabi season. Rice production target for the Kharif season is 112m tonnes, maise production target is 23.10m tonnes, pulse production target is 10.55m tonnes, and oilseeds is 26.89m tonnes. This means, subject to a good monsoon, by the end of the 2022-23 crop season, India will have an increased crop production and a good stock of food grain. In this scenario, the rapid food inflation negates the supply disruption theory.
According to a report published in The Hindu, “An increase in the prices of rice, wheat-atta, jowar, bajra, ragi, vegetables and fruits contributed the bulk of the spike in the two indices with April’s CPI-AL rising to 1108 points and the CPI-RL climbing to 1119. The food group contributed 7.32 and 7.13 points, respectively, to the 10 point jumps in the CPI-AL and CPI-RL (sic).” This shows that despite a bumper crop production in the crop year 2021-22, there remains a lacuna in translating it into a beneficial factor for the common people. It’s clearly the government’s failure.
“The year-on-year inflation rate based on the CPI-AL quickened to 6.44% last month, from 6.09% in March and compared with the 2.66% pace in April 2021. In the case of the CPI-RL, the rate accelerated to 6.67%, from 6.33% in the preceding month and 2.94% in the year-earlier period,” the report also stated. Earlier, in December 2021, the Modi regime had banned future trading—speculative trading on food and essential commodities—on seven commodities for a year to arrest the rising inflation. It didn’t help in the cause but disrupted the supply chain, aiding inflation.
As there has been a higher crop production and there is an expectation of higher production in the current year, the rise in food prices can’t be attributed to the supply-chain disruption or supply crisis. The Modi regime, which promised the world wheat after Russia’s special military operations in Ukraine raised doubt on global supply, has imposed a moratorium on wheat exports. This means that on the supply side, India has enough food grains, including cereals and oilseeds, to provide for the people. In this scenario, continuous food inflation indicates an external factor’s involvement.
Can we blame the hoarding of food grains by unscrupulous traders and corporate supply chains for this skyrocketing inflation? So far, reports have shown that food price rise is a global phenomenon, and the World Bank has estimated that a rise in food prices will push an additional 10m people globally into extreme poverty. However, in a country like India, where food production has been on the rise, it’s not a supply crisis affecting food prices but a combination of hoarding of foodstuff by speculative traders, the rising cost of fuel and the mismanagement of the situation are equally responsible.
What about oil prices?
If the fuel prices are blamed for food inflation in the recent months, even when there was bumper production, then the onus has been upon the Modi regime. According to a research article published by Observer Research Foundation (ORF), in April 2022, the share of taxes in the retail petrol price was 43.65% vis-à-vis 45.5% in March 2022. The share of taxes in diesel price was 38.04 in April vis-à-vis 39.79% in March 2022. Even the tax reduction in April didn’t help curb the petrol and diesel prices.
This means the exorbitant petrol and diesel prices, especially the latter, have aggravated the food inflation in March and April 2022, which even continued in May 2022. This occurs when India continues to increase its Russian oil import basket size, despite opposition from the US and its western allies, by using a profitable Rupee-Rouble trading option. It must also be remembered that the Modi regime didn’t allow the oil marketing companies (OMC) to pass the benefits of lower global crude oil prices between 2014 and 2020 to the consumers. Though the BJP opposes price-control mechanisms, its actions exhibited its hypocrisy.
Instead, the Modi regime had raised taxes on oil to ensure that the common people, including farmers who use diesel for cultivation, pay higher fuel prices. Data shows that excise duty on petrol increased by over 200% and diesel by over 600% between March 2014 and October 2021. In this period, the Value-Added Tax (VAT) on petrol and diesel in Delhi increased by about 97% and 118%, respectively. The Union government’s excise revenue from oil increased by over 163% from Rs 1.72 trillion in the financial year (FY) 2014-15 to Rs 4.5 trillion in FY 2020-21.
Now, by increasing duties by over 200% on petrol and over 600% on diesel—which translated to Rs 32.9 per litre on petrol price and Rs 42.33 per litre on diesel price in FY 2020-21—the government is merely reducing the tariff by a meagre Rs 8 and Rs 6 per litre on petrol and diesel prices respectively. This “generosity” won’t make either agriculture cheaper or transportation of goods, especially foodstuff, affordable. Rather, this will add to the list of such gimmicks by the Modi regime to befool the masses and stun his critics.
Sitharaman called this reduction in excise duties a generous move by Modi and asked the States to follow suit. She claimed that there would be a Rs 1 trillion-worth shortfall in the Union government’s revenue collection due to this reduction. However, she didn’t clarify that if Modi had the final say in reducing the oil prices and providing the people with relief, why did he wait for so long? Moreover, what happened to the money that the Modi regime had accumulated before FY 2021-22 by imposing higher taxes on the oil sold by the OMCs?
Also, if calculated as per the FY 2020-21 rates of petrol and diesel prices, then the States were given Rs 1.4 per litre on petrol and Rs 0.58 per litre on diesel by the Union government. This is anything but not cooperative federalism Modi vouched by while ascending to power. His government’s denial of a proper revenue share to the States may not have troubled the majority of States ruled by his Bharatiya Janata Party (BJP), but it leaves little room for the States led by the BJP’s opponents to reduce their share of excise duties.
In case Modi wants to do justice with oil prices and also wants to walk on the path of cooperative federalism rather than accumulating immense powers in the hands of the Union, then he should have allowed the oil pricing to come under the much-hyped Goods and Services Tax (GST) regime, which would have done away with the complex, multi-layered taxes and provided relief to the consumers as well as money to the States. There would’ve been several options to reduce the tax slab on the petroleum products, and the States wouldn’t have refused as well.
The overall economic crisis
India is in a quagmire of an unprecedented economic crisis caused by the Modi regime’s pro-corporate policies and the unbridled reign of the neoliberal economic menace that has paralysed the small and medium-scale industries of the country and trampled upon the unorganised sector that hitherto employed over 90% of India’s unorganised workforce. The demonetisation exercise, the GST roll-out, the sudden and long lockdown during the first phase of the COVID-19 pandemic, the subsequent state-wide lockdowns, crippling of transport services, etc, not only rang an eerie alarm for the unorganised sector but also rang its death knell.
So far, apart from announcing liquidity provisions for the crisis-hit sector and using rhetoric to augment the local supply chain for a self-reliant, export-oriented economy, the Modi regime has done nothing substantial for the crisis-hit micro, small and medium scale enterprises (MSMEs). The crisis in the MSME sector started in FY 2016-17 with the demonetisation exercise. It intensified and reached its peak before the pandemic in FY 2019-20. This increased India’s unemployment before the pandemic. The unemployment issue has increased both rural and urban poverty in India. The present unemployment rate is 7.3%, which is quite high.
The recent State of Inequality in India Report by the Economic Advisory Council to the Prime Minister shows a gloomy economic picture, which has caused ignominy to the Modi regime and the BJP. The report showed that India’s top 1% bags over 5% to 7% of the national income, while 15% of India’s workforce earns less than Rs 5,000 per month. The top 1% population’s income is constantly rising, while the bottom 10% population’s income is constantly falling. According to the report, those who earn Rs 25,000 ($321.26) or more in a month, fall in the top 10% of the total wages earned bracket.
There are proposals to increase the scope of the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to cover the urban areas as well to provide 100-day-long employment to the working class. The expansion of MNREGA in cities should also be coupled with a provision of a universal basic income scheme, which Opposition candidate Rahul Gandhi had promised during the 2019 Lok Sabha elections. However, for Modi, allowing something like a universal basic income scheme is not feasible as it will hurt his government’s motto of ensuring faster wealth accumulation by big corporates and crony-comprador capitalists.
At the same time, the big corporations in the fast-moving consumer goods (FMCG) sector are complaining about falling sales. In March and April 2022, the big FMCG players saw a steep fall in their total sales as rural India suffered a severe income dip and a rise in poverty caused by the pre-pandemic and post-pandemic unemployment. A Reuters report shows how the FMCG giants are worried about the steep fall in rural sales as the consumers have become cautious in spending each paise. If the rural demand remains low and the urban demand can’t fill the void, the crisis will aggravate.
There is no way left for the Modi regime to mitigate the crisis in the years to come. Though India’s foreign reserves, domestic production and supply chain will prevent a catastrophe like Sri Lanka from unfolding soon, India isn’t immune from one forever. If the government takes no proactive measures to control the situation and increase public spending to generate employment, the Indian economy will sink further, eventually unleashing a severe crisis, and the burden shall fall on the millions of poor. It seems that the Modi regime isn’t in a mood to avert the crisis.
An avid reader and a merciless political analyst. When not writing then either reading something, debating something or sipping espresso with a dash of cream. Street photographer. Tweets as @la_muckraker