Mumbai, India-In the past month, Mumbai-based autorickshaw driver Siddheshwar Yadav’s average monthly income fell 40 percent, hit by a combination of rising fuel bills and autorickshaw rentals, as hikes in oil prices and diesel pushed inflation in India to a crippling 15-month level. high.
Even after working a 12-hour shift every day of the month, Yadav’s monthly income has dropped to Rs 9,000 ($118) from Rs 15,000 ($196.8). With the government banning drivers from raising parking meter fees and many commuters switching to public transport to save a few rupees, Yadav is one of many drivers who have seen their income plummet even as all other costs rise.
“Things have become especially problematic in the last 20 to 25 days,” Yadav said. “Not only fuel, everything has become expensive, vegetables and food too. Years have passed since our initial fare on the subway was revised. Even our unions have done nothing about it. The situation is difficult”.
Fuel prices have risen 26 percent since March 22, as oil trading companies began to pass on the effect of a surge in world crude prices, after Russia’s invasion of Ukraine — to their consumers through consecutive price increases. Rising fuel costs have seeped into food and other staples such as packaged milk, cooking oil, and wheat, among others, disrupting household budgets.
with retail inflation at unprecedented levelsNot just the typical resident, but even small and medium-sized businesses in India are now starting to feel the pressure. While the federal government has been criticized for the high taxes it adds to fuel prices, New Delhi has shown no intention of giving up this important source of revenue.
That is hurting people like Yadav. He says that whereas before he could send almost 11,000 rupees ($144.3) each month to his family in the northern Indian state of Uttar Pradesh, after spending comfortably on food and accommodation in the city, that amount now it is down to just 7,000 rupees ($91.8).
As of Sunday, gasoline and diesel prices stood at Rs 120.51 ($1.57) and Rs 104.77 ($1.37) respectively in Mumbai, up 26% and 21% from the March 22, when the Indian government began raising prices after a four-month pause.
Since fuel is used to transport most goods across the country, the sharp rise in prices is also feeding through to costs in other commodities and sectors. The prices of fruits, vegetables, and even packaged items like milk, coffee powder, and instant noodles have skyrocketed.
The worrying thing, says Kumar Rajagopalan, chief executive of the Indian Retail Association, is “that once the prices of packaged goods go up, they rarely go down. The highest price will become the new benchmark.”
However, smaller retailers and businesses are not yet fully passing on higher costs to their customers, as they fear losing business.
Vatsal Mody, an exporter of synthetic fabrics based in the eastern Indian city of Surat, whose main raw material is crude oil, said that in addition to the sharp rise in prices for that oil, there has been an increase” unrealistic” in freight and container shipping. charges Freight costs rose from $5 per cubic meter before the pandemic to $15 in November-December last year and $25 now, he said. At the moment, though, he’s only adding half of that price increase while bidding for new orders. The exporter is concerned that if it goes higher, he will lose market share.
India fuel dynamics
World crude oil prices and the dollar/rupee exchange rate affect pump prices in India, as it imports about 85 percent of its oil, which is then refined by domestic oil marketing companies and sold in the suppliers.
These companies typically follow a 15-day average of global benchmark prices to recalibrate pump prices every day. However, after a price hike on November 4, they did not raise prices for four months at the behest of the government, even when global crude oil prices rose 45 percent, from $81.6 a barrel to $118.5 a barrel during that time. As a result, the recent spike in pump prices is simply India catching up with world prices for the raw material.
However, these prices also have a component of state and central government taxes, a crucial source of government revenue.
For example, between March 2014 and October 2021, the government-imposed tax on gasoline increased by more than 200% and that on diesel by more than 600%, according to a report by Observer Research Foundation (ORF), a New Delhi think tank.
“Since 2014, the diesel tax and the petrol tax have been increased substantially… So that is hitting us again now,” Lydia Powell, Distinguished Fellow of the ORF and co-author of the report, told Al Jazeera.
Since November, federal government taxes on gasoline and diesel stand at 26.5% and 22.5% per liter, respectively, an increase of 40% on gasoline and 38% on diesel compared to to pre-pandemic levels. Additionally, states also levy a tax that can range from 12 to 22 percent.
“Both the federal and state governments are passing charges, each saying the other should reduce [taxes] but no one is really reducing it because it’s a substantial part of the revenue stream…Overall, I don’t see a substantial decrease in taxes and I think people should get used to higher prices,” Powell added.
And while there has been talk of India gets discounted oil from Russiathe probability of that happening is low as Indian companies are not equipped to process Russian crude.
All of that has fueled rising retail inflation to a 15-month high of 6.95 percent in March, breaking the upper band the Reserve Bank of India’s medium-term target of 2 to 6 percent for the third consecutive month.
But the government loathes the idea of cutting taxes anytime soon as it plans to spend 7.5 trillion rupees ($98.3 billion) in the current fiscal year, its highest allocation for capital spending in nearly two decades. . It also has other existing expenses, such as food subsidies for the poor and fertilizers for agriculture, which are likely to rise if global commodity prices remain high.
“If you lower your excise tax and yet have to pay more fertilizer subsidies and end up increasing your loan program, you end up raising the rate” at which the Indian government can borrow funds, said Abheek Barua, chief economist and Vice President of HDFC Bank.
The higher spending would increase New Delhi’s budget deficit, making it more expensive to finance the gap.
“The macroeconomic effects, even if you explain it very simply, turn out to be quite complex. It is not an isolated decision to reduce or not excise taxes on fuel.
Back on the streets of Mumbai, autorickshaw driver Yadav is lost in some complex financial thoughts of his own.
“First it was Corona and then this inflation,” he told Al Jazeera. “I understand this is due to the war between Russia and Ukraine, but isn’t there something the government can do to provide some relief? My son got married last year and my daughter is already engaged. This is not the right time for my savings plan to fall apart.”