Fuel prices in India are touching all-time highs across the country. Petrol price is nearing the Rs 91 per litre mark, in Mumbai, whereas Diesel is priced at Rs 78.26/litre. In Delhi, the Petrol prices have shot up to Rs 81.91/litre, the Diesel touched Rs 73.72/litre. Chennai, Kolkata and other states are also facing similar problems, with the hike in fuel prices varying from state to state.
Ask the common man the reason for such a rally in fuel prices, and most of them would blame the taxes on petrol and diesel. The taxes on petrol and diesel are around a whopping 100-125%. That is a lot of tax, and seems a bit unfair. But, is it?
Tax is the main source of revenue for the government. All the government schemes, education, healthcare is financed from the tax collected by government. The government can function at it's best as long as it has money i.e. as long as it is able to collect taxes. So if you want the government to provide you with healthcare, infrastructure, a decent standard of living, you need to be willing to pay taxes.
But the recent meteoric rise in fuel prices has nothing to do with taxes, and it has everything to do with global factors around the world. So, what are these factors? The U.S.-China tariff war and the U.S. sanctions on Iran effective from 1 November 2018, are the major factors. The basics of any economy are demand and supply. If the demand is greater than the supply, the prices of goods/services rise, and if the supply is greater than the demand, the prices of goods/services fall, until an equilibrium is established. The U.S. threats of sanctions on countries importing oil from Iran is putting a pressure on the world's oil supply. If, and that's a big if, the countries stop importing oil from Iran, the rest of the OPEC (Organization of the Petroleum Exporting Countries) would not be able to cover Iran's share of oil supply. The demand is already there, the supply-not so much, which would mean more rise in oil prices.
The U.S.-China tariff war, though not influencing the oil price directly, is also playing a part. India is a major importer of oil from all the countries. The import price is affected by the strength of Rupee. The U.S.- China tariff war, is affecting currencies globally, but mostly India. A falling rupee is adding to the government's expenditure on import of oil, along with rising crude oil prices.
This concludes that rising fuel prices are more in response to global factors, something India cannot control. The government is stepping in to check the fall of rupee, but it won't be of much help.
Reducing taxes would burden the financials of the country, and though in the short run every one would be happy, it would have severe consequences in the long run- fall in the GDP, huge fiscal deficit are a few of them.
Taxes, in this particular scenario are good for the country, and instead of asking for the government to reduce the taxes and ruin the country's growth in the long run, we should look for alternatives like carpooling, metro, cabs and have faith in the government to do what is right.
Ask the common man the reason for such a rally in fuel prices, and most of them would blame the taxes on petrol and diesel. The taxes on petrol and diesel are around a whopping 100-125%. That is a lot of tax, and seems a bit unfair. But, is it?
Tax is the main source of revenue for the government. All the government schemes, education, healthcare is financed from the tax collected by government. The government can function at it's best as long as it has money i.e. as long as it is able to collect taxes. So if you want the government to provide you with healthcare, infrastructure, a decent standard of living, you need to be willing to pay taxes.
But the recent meteoric rise in fuel prices has nothing to do with taxes, and it has everything to do with global factors around the world. So, what are these factors? The U.S.-China tariff war and the U.S. sanctions on Iran effective from 1 November 2018, are the major factors. The basics of any economy are demand and supply. If the demand is greater than the supply, the prices of goods/services rise, and if the supply is greater than the demand, the prices of goods/services fall, until an equilibrium is established. The U.S. threats of sanctions on countries importing oil from Iran is putting a pressure on the world's oil supply. If, and that's a big if, the countries stop importing oil from Iran, the rest of the OPEC (Organization of the Petroleum Exporting Countries) would not be able to cover Iran's share of oil supply. The demand is already there, the supply-not so much, which would mean more rise in oil prices.
The U.S.-China tariff war, though not influencing the oil price directly, is also playing a part. India is a major importer of oil from all the countries. The import price is affected by the strength of Rupee. The U.S.- China tariff war, is affecting currencies globally, but mostly India. A falling rupee is adding to the government's expenditure on import of oil, along with rising crude oil prices.
This concludes that rising fuel prices are more in response to global factors, something India cannot control. The government is stepping in to check the fall of rupee, but it won't be of much help.
Reducing taxes would burden the financials of the country, and though in the short run every one would be happy, it would have severe consequences in the long run- fall in the GDP, huge fiscal deficit are a few of them.
Taxes, in this particular scenario are good for the country, and instead of asking for the government to reduce the taxes and ruin the country's growth in the long run, we should look for alternatives like carpooling, metro, cabs and have faith in the government to do what is right.
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