The Unconvincing Truth: Arun Jaitley Argues Regarding The Lower Fuel Taxes To Be Imposed

Arun Jaitley the Union Minister defended the current status of central taxes on retail prices of petroleum products by arguing that it raises revenue for growth inducing government spending without exploring fiscal deficit. It’s an unconvincing argument, mainly because oil taxes were sharply enhanced when international oil prices fell. Perks of the direct link between international price of oil and local retail price were largely cornered by the government. Now, when crude prices have risen, the cost is entirely imposed on the consumers.

The gains will accrue to consumers. Most of these are likely to show up as higher private consumption expenditure, which will boost the largest segment of gross domestic product. There is no actual evidence to suggest that extra spending by government is a better way to stimulate the economy.Instead, they led to a sharp wide range of fiscal and current account deficits and made India vulnerable during the taper tantrum.

The widening deficits were eventually brought under control between 2012 and 2014 by squeezing government expenditure. Thus fiscal and current accounts deficits had compressed by March 2014 and economic growth picked up – and this momentum continued till 2016. If there’s a clamour for lower fuel taxes today, it’s because the average price of oil in 2011-12 was $111.89, almost twice the level seen last financial year. Yet, retail prices remain the same. Allowing consumers to retain some of the gains of lower oil prices can stimulate the economy, and keeping a check on government expenditure will help NDA maintain its record of prudent fiscal management.