Has India got it right on fuel prices?
So it’s official. India has finally raised fuel prices, by more than most people expected. A hike in diesel prices in particular is sure to feed through into overall inflation. At the same the government removed the import duty on crude oil.
Despite the price rises, oil companies are still going to be losing huge amounts of money and gas-guzzling cars are still going to be heavily subsidized by ordinary taxpayers. The oil ministry had even argued for steeper price hikes.
Are subsidies really the right way to go in the modern world? Is the government sacrificing good economics on the altar of political populism?
Or should the government have tried harder to protect the poor by keeping fuel prices down despite global inflation in oil? The left says the price rises were avoidable, and the government should instead have cut excise duties more and imposed windfall taxes on private companies.
And is this decision going to have a major impact on the UPA government’s chances of re-election?