Fuel price hike is inevitable, but India needs new economic reforms to face crisis
It has quickly come to be known as Prime Minister Narendra Modi’s Seven Appeals. With the outcome of the US-Iran war still uncertain, the PM, during his public meetings in Telangana and Gujarat, harked back to the gloomy Covid days and suggested a voluntary bout of austerity.
Starting with Work from Home (WFH), he also suggested avoiding buying gold for a year, using public transport, cutting down on cooking oil use, moving away from chemical fertilisers, opting for Swadeshi, and shunning foreign travel for a year. The remarks come amid concerns over volatile global energy prices, rising import bills, and the strain on India’s foreign exchange reserves. Of these, the issue of gold is one that strikes India deeply, yet remains poorly understood. India is among the world’s top consumers of gold. It consumes 20-25% of global annual demand, or around 700-900 tonnes of gold each year. China, the US, Turkey, and the UAE or Saudi Arabia are other major consumers. India and the Middle East’s appetite for gold is tied to weddings, cultural traditions, trade, and investment.
But the issue gets complex here. Gold is culturally embedded in India. Asking people to defer gold purchases is understandable as gold imports affect the trade balance. But gold in India is not just a luxury consumption item; it is also a form of household savings. It is critical at weddings and boosts informal financial security. True, austerity measures can be double-edged. All India Gem and Jewellery Domestic Council (GJC) chairman Rajesh Rokde reportedly reacted to the appeal, saying the move may seriously impact over one crore people working in India’s jewellery sector. He has proposed a monetisation scheme to unlock the value of gold, as India already possesses thousands of tonnes of idle household gold at home or in banks.
On the issue of energy, India imports 85% of its crude oil. State-run oil marketing companies are incurring heavy losses every day. Much to the relief of consumers, fuel prices have not been increased despite soaring global fuel prices. With Modi seeking people’s participation in tackling the economic crisis, it is clear that a petrol and diesel price hike is inevitable soon. Experts say India, like most countries, has been impacted by the war, but it took time to caution and prepare people for austerity measures, unlike many other countries. Analysts now say that India deferred making the announcements because four states and one Union Territory were going to the polls. It would have looked contradictory and gone against the ruling party, as election campaigns involved leaders travelling by private jets and helicopters. What is worse is that freebies and sops were announced by all major political parties.
Of course, from a macroeconomic perspective, most parts of the appeal are economically sensible. Conserving foreign exchange during an external oil shock is understandable. However, it is important that common people should not feel they are being asked to sacrifice while inequality rises. While citizens definitely need to join in, it is the responsibility of the central and state governments to follow suit. The central government itself can impose certain restrictions such as a ban on holding conferences and meetings in star hotels, limiting air travel and foreign trips (by state governments too), and a freeze on mass recruitment. India also needs new economic reforms that will deliver both long- and short-term results to offset the impact of the global economic crisis. It must be India first for politicians too!
