"Every economic crisis in India has been triggered by excess of dollar spending over dollar earnings leading to a foreign exchange crisis. The first two, in 1957 and 1965, were caused by dystopian policy on capital goods and drought-driven food imports. Since then, almost in every decade, in 1974, 1979, 1982, 1991, and more recently in 2013, the economy has mostly slipped on the oil slick. The baritone of rising crude prices and the shrieking falsetto of the falling rupee have announced crises amidst operatic politics.
The spectre is back to haunt the economy in 2018. The dollar is over `68 and Brent crude prices are hovering between $75 and $80 per barrel, which is $10 per barrel higher than estimated in the budget—a rise by one dollar adds around `800 crore or about $120 million to the import cost, and more if the rupee slips further. The gap between exports and imports, dollar earnings and expenditure in 2017-18 was around $157 billion. Crude oil accounts for roughly a fourth of the imports.
The headline attention is on the cost consumers must now pay following 12 hikes—prices have touched the highest yet, and the per-litre price of petrol is `85.78 and diesel is `73.36 in Mumbai. The government, following public outrage, has promised a long-term plan to ease the price pain. There is talk about shifting petro goods on to GST to curb the current structure of ad valorem tax on tax. The state governments have been urged to cut VAT and there is some buzz about structuring subsidies."
Read the full article here.