The best solutions need long-term continuity with cross-party consensus
The 30% slide in international crude oil prices from four-year highs notched in early October could well benefit the chances of Prime Minister Narendra Modi’s ruling Bharatiya Janata Party in India’s general elections, to be held in the spring.
In one of the world’s largest economies, with a burgeoning urban middle class, pump prices can quickly become a hot-button issue, especially if they hit historic highs, as happened early last year.
The burden of transportation cost inflation on the man on the city street is played to the hilt by the media and is easily politicized, with the ruling and opposition parties trading barbs. The effect is amplified in an election year.
The Modi government probably faced more heat than usual over last year’s spike in petrol and diesel prices because it had eliminated diesel subsidies shortly after coming to power in 2014 and proceeded to raise taxes on transportation fuels several times over 2014-2016. That resulted in pump prices hitting all-time highs in rupee terms in Indian cities of 91.20 rupees ($1.22) per liter for petrol and 80.10 rupees per liter for diesel though international crude prices had only touched a four-year peak.
The central government finally caved in to public and political pressure in early October, whittling down the excise tax on petrol and diesel by 1.50 rupees (2 cents) per liter from 19.48 rupees and 15.33 rupees per liter respectively. The country’s public-sector refiners were asked to cut prices by another 1 rupee per liter, out of their pockets. It was a tough decision for the government and forcing the refiners to share some of the burden was far from ideal. But at least the government did not resort to bringing back state subsidies, which would have been a more regressive step.
The BJP may indeed have the tailwind of lower oil prices in 2019 compared with 2018 as it seeks the voters’ mandate for a second term in the central government. But hoping for international crude prices to remain low is not a strategy.
Brent could bounce back from the current levels of $50 per barrel. OPEC producers and their non-OPEC allies have begun to restrain production by a collective 1.2 million barrels per day starting from Jan. 1, with the aim of tightening supply and pushing crude prices higher.
A breakthrough in the U.S.-China trade…
