India must reduce its fossil fuel dependence
The Narendra Modi government has reduced excise duty — to be precise the cess levied on excise duty — on petrol by `8 per litre and on diesel by `6 per litre to bring down the retail inflation that has hit an eight-year high and wholesale inflation that stands at a 17-year-high. As the state government charges value added tax (VAT) on the value which includes excise duty, the Central government’s decision will lead to further a reduction in fuel price. As finance minister Nirmala Sitharaman said the petrol price will reduce the price of petrol by `9.5 a litre and diesel `7 a litre. It is, therefore, a welcome decision.
Though the reduction in excise duty will ease the pinch on the pocket of the people and result in good optics to an extent, a dispassionate analysis shows that it will not help the government reduce inflation significantly because almost every product has become costlier due to supply shortages. Also, once a business entity has passed on the cost of the fuel hike to its customers, it will rarely reduce the price of the final product even if the transport costs decline. The cut in the fuel price will, at best, prevent companies which have not already passed on the impact of high oil costs from doing so.
Policymakers know very well that inflation hurts the poorest the hardest. The poor family typically spends most of its income on food and shelter, followed by education and health — not counting on the liquor spend. The government should, therefore, focus on facilitating a method to keep the prices of these four necessities stable by strengthening the public distribution system and encouraging self-sustenance in edible oil and pulses.
Crude oil prices have been a perennial problem for India. Every economic crisis that the country had witnessed could be traced back to a spike in global crude oil prices. Though the Green Revolution ushered in by the Indira Gandhi government had helped India discard its begging bowl for food aid from foreign countries in the 1970s, no government has been able to successfully make the country independent of foreign crude oil and its impact on Indians — either because of the lack of alternatives or the lack of will.
However, today the world has alternatives to fossil fuel. Prime Minister Narendra Modi has an opportunity to etch his name in history by fast-pacing India’s shift toward green and clean transportation. The adoption of green vehicles could be fast-tracked by increasing battery-swap stations at state-run fuel stations and helping private companies to achieve scale by central and state governments converting its entire fleet to electric.
Faster completion of the proposed freight corridor and its expansion to new areas will allow commercial freight operators reduce their dependence on diesel for transportation through the hub-and-spoke model involving railways and trucks for the first-mile and the last-mile connectivity. The day India ends its dependence on fossil fuel, it would be its second Independence Day.
Prime Minister Narendra Modi has an opportunity to etch his name in history by fast-pacing India’s shift toward green transportation. The adoption of green vehicles could be fasttracked by increasing battery-swap stations at state-run fuel stations.