1.The case for a fuel tax cut

The Indian basket of crude is at about $78/bbl, an increase of about 20% since June. This period marks the phased resumption of normalisation after the second Covid wave.

Retail price of petrol in many cities breached the Rs 100/ litre mark a while ago and is set to get higher as the cost of the primary input, crude, is increasing. Consequently, there’s a call for a reduction in India’s high fuel taxes which is countered by both GoI and states as a step that would lead to revenue loss.

The revenue loss argument is overstated because it’s based on a half-baked approach.

Available data, such as the one by SBI that analyses mega trends by using credit card spending as the input, show that as fuel prices kept increasing, people began to switch their expenditure pattern by cutting down on groceries.

In the absence of a rise in incomes, expenditure switching is bound to happen as transport expenses are inflexible once normalisation is underway.

Therefore, what governments gain through fuel tax can be partially offset by a slowdown in the GST collection trend.

Also, given that in a country where over 80 out of 100 passenger vehicles sold are two wheelers, high fuel taxes have adverse distributional consequences in the current economic scenario.

2.Congress conundrum: Will Sibal’s criticism of party high command open the floodgates, and lead to reform?

Congress leader Kapil Sibal’s press conference yesterday truly brought out of the closet to public cynosure the year-long jostling within the party over its state of headlessness. It perhaps lays the ground for open challenges to Congress’s current mode of functioning – Sonia Gandhi is the interim president but Rahul Gandhi and Priyanka Gandhi Vadra seem to be taking weighty decisions, without having to own responsibility for outcomes like the current Punjab fiasco. In his consequential presser, Sibal signalled that the G-23 grouping would stay within the party and fight BJP while demanding organisational reform unlike many family loyalists who deserted in recent times.

If more of the G-23 cohort like Bhupinder Singh Hooda, Ghulam Nabi Azad and Shashi Tharoor embrace the same vein of criticism, which cannot be termed anti-party activity by any stretch, the high command could be forced to end the current stasis, where the party is interminably waiting for Rahul to make up his mind on re-assuming the presidency. In Congress “Ji Huzoor” ways of functioning that Sibal alluded to, the process could even start only after six state election results come in 2022, thanks to the party’s grim prospects and therefore to insulate the new president from failure.

Meanwhile, 28 months have elapsed since the last regular Congress president stepped down. Such unprofessionalism and a feudal hangover in an extremely competitive political marketplace with complex voter preferences have left Congress rudderless. Navjot Sidhu’s surprise elevation and shock resignation is now being laid at the door of this unaccountable leadership style. Sidhu undermined Rahul on a day the latter unveiled two high-profile inductions into Congress, and dented new CM Charanjit Singh Channi’s credibility by slamming “tainted” appointments to his government.

Congress’s internal troubles have denied India the benefit of a national party that can perform the job of a constructive opposition without succumbing to regionalism. Single-party governance with a weak opposition has led to poor outcomes for India in the past. TMC and AAP are foraying out of their limited bastions but doubts abound over their national viability. If Congress is indeed pursuing a sharply leftward turn under Rahul, this momentous change is seeing no debate or discussion in party forums. The party has missed leadership and a national narrative since the 2019 defeat. The grievances of Sibal and co and defectors have their roots in this directionless drift. Arresting that is an existential necessity for GOP.

3.A scheme before its time: On digital health mission

A digital health mission needs to get all the fundamentals of the ecosystem right

Prime Minister Narendra Modi has announced the National Digital Health Mission, the most salient aspect of which is that all citizens will have the option of voluntarily opting for a Health ID, a 14-digit health identification number that will uniquely identify every citizen and will be a repository of their medical history. Illustratively, it will contain details of every test, every disease, the doctors visited, the medicines taken and the diagnosis. The portability this offers implies a person will, in theory, never have to haul around their reports. The doctor who is examining the patient can give more well-informed advice because it is possible that patients may not consider aspects of their medical history relevant to share with a doctor, or sometimes may forget about them, but which may be valuable for a better diagnosis. This id can be created by using a person’s basic details and mobile number or Aadhaar number, and there will presumably be an app acting as a convenient interface.

4.Rethink fuel prices — it is a negative stimulus

To be sure, both the Centre and the states are gaining a fiscal windfall from taxes on fuel. In the interest of a sustainable economic revival and preventing inflation and, more importantly, keeping inflation expectations from increasing further, both the Union government and the states must agree to reduce taxes.

Petrol prices were increased by ₹0.20 per litre in Delhi on September 28. This rise in prices comes after a more than two months of stable or falling prices. Diesel prices have risen four times, by an aggregate of ₹0.95 per litre since September 24. This rise has come in the backdrop of Brent – the international benchmark of crude petroleum prices – reaching $80 per barrel after three years. Private analysts such as ones at Goldman Sachs expect petroleum prices to remain elevated.

This is not good news for the Indian economy. Fuel prices are already at a record high in India. If crude prices were to rise further, oil companies are likely to raise fuel prices, and headline inflation will start rising once again. This is bound to hurt purchasing power and mass demand. It will also generate headwinds for the ongoing economic recovery.

India’s fuel inflation story is not entirely a result of external factors. Fuel prices would be much lower if the tax component were to come down to pre-pandemic levels. Higher taxes on essentials such as petrol-diesel are a negative fiscal stimulus to the economy. Recently, there have been discussions on the Centre’s fiscal situation being better than expected, with higher direct tax collections. Such claims need to be seen in the context of the fiscal buffer from what are inflation-enhancing taxes on petrol-diesel. To be sure, both the Centre and the states are gaining a fiscal windfall from taxes on fuel. In the interest of a sustainable economic revival and preventing inflation and, more importantly, keeping inflation expectations from increasing further, both the Union government and the states must agree to reduce taxes. This is exactly what the Monetary Policy Committee of Reserve Bank of India had asked them to do in August.