Why higher fuel tax is good?
Reforms such as suspension of labour laws and rights for three years are not the way to go during a world crisis but some states in India have followed this path. But according to experts higher fuel tax is a good reform by the Government of India. He Government has raised the excise duty on petrol and diesel in March as well as in May. It is no news that a recession caused by this Covid-19 crisis will lower the GDP of India. Experts have calculated that the GDD will be down by at least 2-3% by the time the economy stabilizes but the increased taxation on fuel will also provide almost 1% increase in the GDP.
About 70% of the price of today’s fuel accounts for a precipitately high carbon tax. Even though India’s petrol price sits at a mighty Rs. 80 per litre, it is still lower than the price of petrol in Europe and Japan where it is taxed at a very inconveniently high rate but higher than the US where it is lowly taxed. India is the most populated nation amongst these and thus the carbon tax should be higher. Higher the tax rate, fewer the people who will buy the fuel and thus providing them with an incentive to switch to electric vehicles which have zero carbon emission.
In India, an increase in fuel tax is met by public backlash and thus forcing annulment of the change. What the public does not understand is the Government has been increasing the prices gradually over the decade without any major increase. The Government follows the world trend when the fuel prices rise, but reduces only a little of the fuel price when the world fuel price dives. Earlier when all the fuels were subsidized the fuel prices had reached its peak in the early 2000s but thanks to the Government and its policies, there are no fuel subsidies anymore. This is because fossil fuel is reducing by epic margins and by 2050; there will be no fuel left. Further, the toxic gases released upon combustion of these petroleum fuels only adds to world pollution and increases the temperature across the world causing the ice-caps to melt.
Increased taxes become a reason for people to shift to renewable sources of energy like solar energy, hydro energy, etc. Subsidies became a part of every electoral candidate’s campaign and it became untouchable. Subsidies became popular as they made fuels like diesel and kerosene cheaper than it is around the world. Though the fuels got cheaper, there were a lot of negatives to subsidies. Kerosene subsidies were used by middle-class for cooking and other purposes but when they switched to LPG subsidies which provided a fuel of superior quality, kerosene was used to adulterate diesel and petrol which caused engine failures and corroded the pumps. What little subsidy remains seem to have been quietly phased out in recent months. In the longer run, solar electricity should become progressively cheaper and replace petroleum and natural gas for cooking as a zero-emission fuel.