Modi resists populism for a sensible policy option

|By K Raveendran| India has raised tax rates on petrol and diesel, taking advantage of falling oil prices to bolster government revenues, which will help Narendra Modi’s government to tough fiscal deficit targets.

The move has disappointed even the most ardent Modi fans, who would have expected the government to take advantage of the falling oil prices to reduce retail prices of petrol and diesel. But a deeper examination of the issue reveals that Modi may have resisted the appeal of a populist move to opt for a more prudent alternative.

In fact, the Modi government has followed other similarly placed economies, including China, which have used the opportunity to raise fuel taxes while some others such as Indonesia have selected the easier option of cutting subsidies.

Observers point out how higher fuel taxes constitute a sensible fiscal strategy as it raises revenue, encourages energy efficiency and, in the longer term, help the overall economy.

India spends some $23 billion a year on subsidising petrol and diesel, a major part of which goes to the benefit of the wealthy. Cheaper fuel, for all practical purposes, end up subsidizing the middle and upper classes, who can afford to pay higher prices.

So, the Modi government can be credited with a pragmatic as well as sensible move, irrespective of the immediate negative reaction