Why rising fuel prices are good for environment & economy? Swaminathan Aiyer explains

For India's economy, these are challenging times. The skyrocketing prices of fuel have put the common man under a lot of stress and the Opposition has found a welcome opportunity to step up the attack on the Narendra Modi government ahead of the next set of state elections and also the big Lok Sabha election scheduled next year.

One of the demands to deal with the menace have been to cut the fuel taxes levied on petroleum products so that the sharp rise is arrested and the common man gets a relief. However, not all economics pundits are agreeing to this point.

'Slashing steep taxes not right move to make'

One of them is Swaminathan Aiyar. According to the 78-year-old noted scholar whose views on economics are appreciated in several quarters, slashing India's fuel taxes will not be the right thing to do despite the fact that the steep prices are hurting the common people.

Aiyar wrote in a Times of India blog that the same middle-class Indians who are seeking a slash in fuel taxes are those who also want the threat of climate change neutralised. According to him, reducing taxes on petroleum products will see people consuming them more and that will lead to increased carbon emission, causing environmental impact.

Fuel prices hiked again, Petrol nears Rs 90 a litre in Mumbai today

"Instead, the logical way forward is a high tax on all forms of carbon, making this revenue-neutral by cutting taxes on other items. That will discourage carbon emissions without affecting tax revenue, which is needed for infrastructure and essential social spending. This will be a wise climate precaution even if the global warming threat turns out to be exaggerated," he said.

Aiyar was also pleasantly surprised that India was doing just what he prescribed. He said while the Goods and Services Tax rate on most items vary between zero to 18 per cent with some going as high as 28 per cent, effective tax rate on petrol in states like Maharashtra, Delhi and Karnataka is close to 100 per cent. India is thus extracting an exceptionally high tax on carbon in oil products and compensating that with lower taxes on other goods and items.

Aiyar also put forward some other points justifying his call for maintaining exceptionally high prices on oil products. Besides discouraging people to consume more petroleum products, Aiyar feels the high tax will also help preserving oil resources that are exhaustible and also the fact that India imports oil in a huge quantity to keep its momentum of development going also makes it vulnerable to sudden increase in its price. If the oil prices continue to shoot up, India's balance of payment will take a hit and that also makes the decision to keep fuel taxes high right. Aiyar commended the Modi government for holding its ground on strict oil taxation and not engage in populist politics with the economics as that could hit the stability - both fiscal and currency.

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