Rizwanudeen, a 37-year-old worker who delivers food in the southern Indian city of Chennai, struggles to pay his rent and loan instalments at the end of every month, as he has been hit by the double whammy of higher fuel prices and fewer food orders.
Millions of weekly wage earners like Rizwanudeen who make their living ferrying goods or people throughout India have been hit hard by record-high fuel prices that are among the highest in Asia, having risen by one-third in the 15 months since COVID-19 first struck the nation.
The average cost of a liter of gasoline in Mumbai has risen above 100 rupees (US$1.37) this month, 50 to 70 percent more than in Bangkok, Hanoi and Manila. State and federal taxes, which have doubled since Indian Prime Minister Narendra Modi came to power in 2014, account for more than 60 percent of India’s retail fuel price.
With the federal government facing soaring healthcare costs tied to its ongoing battle with COVID-19, and committed to vast farm and other subsidies, a Ministry of Finance official said there was little scope for a meaningful tax cut that might ease the pain on low earners.
“I used to spend 1,500 rupees a week on petrol before the pandemic, now I spend 2,000 rupees. I am already earning less due to fewer orders due to lockdowns,” Rizwanudeen said, adding that one- third of his earnings went to fuel.
For an Indian worker earning the average national wage, a liter of gasoline would take up one-quarter of their daily income, according to Reuters calculations.
Federal government fuel tax revenues have risen 80 percent to 2.55 trillion rupees over six years ending 2019-2020, Tamil Nadu State Minister of Finance P.T.R. Palanivel Thiagarajan said at a meeting on taxes last month.
However, tax revenues shared with the states have declined by more than 200 billion rupees over that period, he said, echoing a common gripe among state officials over fuel tax allocations.
With total federal tax collections hit by the industrial slowdown caused by COVID-19-induced lockdowns, New Delhi has been reluctant to lower fuel taxes, even after oil prices collapsed to multiyear lows last year.
State authorities, which have faced soaring healthcare costs this year due to the pandemic, have blamed the federal levies for the higher prices. The federal government has said it would only lower taxes if state-level taxes are cut.
Despite the standoff over who should move first to lower tax rates, Reserve Bank of India Governor Shaktikanta Das last week acknowledged that surging fuel prices posed a threat to the broader economy and required coordinated action by central and state governments.
His warnings came after India’s wholesale price index surged 10.49 percent year-on-year in April.
Further key cost increases are on the way. Rental rates of trucks, which deliver everything from perishable produce to machine parts in India, could rise by 10 percent this month on the back of higher fuel costs, said S.P. Singh, senior fellow at Indian Foundation of Transport Research and Training.
“In May, rentals declined as truckers saddled with monthly instalments for vehicle purchases were absorbing fuel prices in the absence of business. Now, as lockdowns are easing, freight rates are firming up,” Singh said.
Das said that while federal and state governments might be inclined to tackle high fuel prices, their options might be limited by their already-tattered budgets.
For Selva Murugan, a 35-year- old former driver around Chennai for vehicle service Ola, the damage has already been done.
“I was able to pay my loan dues when diesel cost about 65 rupees a liter. After that, I started feeling the crunch and around the time it touched 75 rupees I decided to sell my car,” Murugan said.
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