The Federal Structure of Fuel Prices

Fuel prices are going through the roof, and the predictable finger-pointing exercise is on. But economists say that states have the power to slash prices. Will they listen?

- Ashish Gupta

Trade meme-makers have been busy over the past couple of months as petrol and diesel prices have been inexorably rising. There’s plenty of oil economics doing the rounds on social media, and people who may not know the difference between crude and Vaseline are all holding forth knowledgeably about the oil import bill. But what is really happening and what, if anything, can the government do?

Global fuel prices went up following an artificial supply crunch caused by the Organization of Petroleum Exporting Countries (OPEC) and Russia. This hits India hard because the country depends heavily on imported oil; India is also one of OPEC’s biggest customers.

The question that’s haunting policymakers today is whether the government should subsidise oil prices (or reduce taxes on oil) till the global situation is resolved, or if it should allow market forces to determine prices.