Srinagar, July 7: As retail prices of petrol and diesel hit record-high levels on Wednesday in both Kashmir and Jammu regions, economic analysts see the unprecedented daily hike as a major stumbling block for economic recovery in Jammu & Kashmir.
As the average petrol prices hover around Rs 100 per liter and the diesel prices inching towards the 3-digit mark across J&K, cost of living is becoming unaffordable for vast sections of the people who do not have an assured salary or income.
Economic analysts Ziraat Times spoke to opine that the higher fuel prices would severely dent J&K consumers’ disposable incomes and the end result will be slower economic growth and long recovery, if at all it would come by in the near future.
The available data of key economic activities in J&K suggests that its economy is far from coming back to the pre-August 2019 level. Most of the economic activities have either stalled or are barely sustaining, resulting in slower revenue collection rate, unemployment, lesser disposable incomes with the people of J&K.
And the worst is yet to come. Lately, oil producing countries have exhibited reluctance in increasing production, pushing the international crude prices even higher, making fuel even more costly in India, and also in Jammu & Kashmir. In this situation, the union government has made it clear that it had no immediate plans of bringing down taxes on fuel, which now constitute the bulk of the retail fuel prices in the country.
Fuel price hike trend in J&K
On Wednesday, July 7, 2021 petrol prices in Srinagar rose to Rs 103 per litre, while the diesel price was at Rs 93 per litre. This is the sharpest ever increase in a month, and makes petrol and diesel in J&K among the costliest in the country.
On the other hand, prices in Jammu city were relatively lower – petrol price was Rs 99.64 per litre while diesel price was Rs 89.93 per litre.The intra-J&K differential is mainly due to the differential transportation costs.
Sources in oil companies tell Ziraat Times that high fuel prices are already resulting in a slump in fuel demand in J&K as fewer people owning non-commercial vehicles are continuing with their normal vehicle use.
Price hike of commodities
This daily increase and record high prices have resulted in sustained upward strain on the prices of goods and products, including essential commodities across J&K, especially in Kashmir region and the mountainous regions of Chenab and Pirpanjal valleys. No differential commodity-wise retail price differential is available at the official level for J&K and its immediate market neighborhood in North India.
In the last two years, the cost of transportation of a truck between Srinagar and Jammu/Delhi has gone up between 40-60%, a major distributor of fast moving consumer goods (FMCG) told Ziraat Times.
High central and state taxes on fuel in J&K
Presently, the central excise duty, Sales Tax and VAT structure for petrol and diesel are the main price drag on fuel in J&K.
Petrol and diesel price band in J&K has two tax components – central excise duty (which is in the range of Rs 13-16 a litre on petrol and diesel) and the sales tax/VAT at the state level.
Sources in the Finance Department of J&K government tell Ziraat Times, as of June, 2021, Sales Tax and VAT for petrol in J&K consisted of 24% Motor Spirit Tax Rs.5/Litre employment cess. For diesel, sales Tax and VAT consisted of 16% Motor Spirit Tax + Rs.1.50/Litre employment cess.
Why a tax reconsideration in necessary in J&K
There are several reasons why economic experts feel that the government should reduce tax on oil. Inflation is the main reason.
Information collected by Ziraat Times through FMCG and Mandi system reveals that J&K’s retail inflation has already breached the Reserve Bank of India’s “comfort level” mark – meaning that the current inflation level is likely to have a cascade effect across sectors and economic activities, making economic recovery – crucial to saving the residual jobs and economic activities in the private sector – even more difficult.
If petrol and diesel prices remain at their current levels or increase in future, economic analysts believe, the demand for two essential fuels in J&K will decline sharply and ultimately hurt the government’s revenue collection.
Fuel prices directly impact several sectors including passenger transport, goods transport, food delivery and e-commerce in J&K. The cost that consumers bear for such services — directly or indirectly — have been rising gradually over the past two years as a result of rising fuel prices in J&K, much higher than the national average.
Stress on low-income people in J&K
J&K’s poor households are presently paying more money for other commodities and services that are indirectly dependent on fuel prices. On the other hand, incomes have either gone down or remain at the same level.
Today, there is an increasing trend of distress selling off of cars, as many people with no sustained, secure incomes are finding the daily costs of car travel unaffordable. “Driving the car for daily work for me is not possible any more,” said Aijaz Ahmed, who has already lost his job in a Srinagar hotel and is working as an insurance agent now.
Nikhil Singh, who works as an engineer in a local factory in Jammu, drives his car to work once a week only. “I leave my car at home now. Sometimes I pool cars with colleagues and we share fuel costs. Or sometimes I simply use public transport. But using public transport is risky in this pandemic situation. But what option do I have? My salary can’t afford driving the car anymore”, he told Ziraat Times.
Impact on the larger economy
At the moment, India has the highest fuel rates among its neighbouring countries and the prices are likely to climb further as global oil rates rise. Experts have warned that rising fuel rates could severely derail India’s economy, which is already under pressure due to the impact of the second Covid-19 wave.
Impact on agriculture sector
Key agricultural and horticultural products, mainly vegetables from Kashmir valley, are losing their competitive edge because of high transportation costs involved in export.
“This situation might change only if fuel costs are brought down and if there is reliable railway and road connectivity between Srinagar and Jammu. As of now that looks like a mirage”, a vegetable exporter from Kashmir said.
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