Diesel price made a fresh record at Rs 81.34 in Mumbai and narrowed the gap with previous peak in Delhi as state-run fuel retailers, who dominate the market, resumed daily price revision after a 5-day gap to pass on the impact of crude’s week-long rally.
After the latest hike, diesel costs Rs 74.63 a litre in Delhi, 82 paise short of the record Rs 75.45 on October 4, 2018. Petrol hit its highest in Mumbai at Rs 91.34 on October 4, 2018.
When fuel prices rise, the cost of everything else also shoots up. This impacts common people adversely. The government must reduce the tax burden, especially at a time when many are already suffering due to job loss or salary cuts.
Crude has been on an upswing on Covid-19 vaccine rollout, Saudi offer of an additional million barrel per day production cut and an agreement among OPEC-plus grouping to hold the output level in February. A higher-than-expected drawdown of US strategic oil reserves has buoyed sentiments further.
But part of the blame for skyrocketing pump prices also lies with the high Central excise and state taxes, which amp up the impact of increase in crude price. Taxes make up over 60% of retail prices in Delhi, considered benchmark market, and more in states with higher VAT such as Maharashtra.
The Centre had raised excise duty on petrol cumulatively by Rs 13 per litre and diesel by Rs 16 in two tranches on March 16 and May 5 to suck out the benefit of historic crude price collapse as the pandemic shut down economies around the world. But fuel retailers did not raise pump prices and adjusting the excise hike against higher margins due to falling crude. But as states followed with VAT hikes, retailers passed it on by raising prices. Yet, consumers largely remained unaffected since only essential service vehicles were out on roads.
But now that demand is back to near-normal, consumers are paying through their nose because the Centre and states are continuing with the higher excise.
Global economy projected to grow at 5.5% in 2021: IMF
“In our latest World Economic Outlook forecast, we project global growth for 2021 at 5.5 per cent, 0.3 percentage point higher than our October forecast, moderating to 4.2 per cent in 2022,” said Gita Gopinath, chief economist of the IMF.
The global economy contracted by an estimated 3.5 per cent in 2020 amidst the unprecedented health crisis.
The 2021 forecast is revised up by 0.3 percentage point relative to the previous forecast (5.2 per cent) in October last year, reflecting expectations of a vaccine-powered strengthening of business activities later in the year and additional policy support in a few large economies, the IMF said.
According to Gopinath, the upgrade for 2021 reflects the positive effects of the onset of vaccinations in some countries, additional policy support at the end of 2020 in economies such as the United States and Japan and an expected increase in contact intensive activities as the health crisis wanes.
However, the positive effects are partially offset by a somewhat worse outlook for the ‘very near-term’ as measures to contain the spread of the virus dampen activity, she said.
Noting that there is a great deal of uncertainty around this forecast, Gopinath said that greater success with vaccinations and therapeutics and additional policy support could improve outcomes, while slow vaccine rollout, virus mutations, and premature withdrawal of policy support could worsen the outcomes.
If downside risks were to materialise, a tightening of financial conditions could amplify the downturn at a time when public and corporate debt are at record highs worldwide, she added.
The Indian-American economist said the projected recovery in growth this year follows a severe collapse in 2020.
Even though the estimated collapse (-3.5 per cent) is somewhat less dire than what the IMF had previously projected (-4.4 per cent), owing to stronger-than-expected growth in the second half of last year, the 2020 economic shrinkage remains the worst peacetime global contraction since the Great Depression (1929-1933).
Due to this partial rebound, over 150 economies are expected to have per-capita incomes below their 2019 levels in 2021. That number declines, only modestly, to around 110 economies in 2022.
At $22 trillion, the projected cumulative output loss over 2020-2025 relative to the pre-pandemic projected levels remains substantial, she said.
The IMF, in its World Economic Outlook (WEO) update, said that consistent with recovery in global activity, global trade volumes are forecast to grow about eight per cent in 2021, before moderating to six per cent in 2022.
Services trade is expected to recover slower than merchandise volumes, which is consistent with subdued cross-border tourism and business travel until Covid-19 transmission declines everywhere, it said.
According to the WEO, the emerging market and developing economies are projected to trace diverging recovery paths.
Considerable differentiation is expected between China — where effective containment measures, a forceful public investment response, and central bank liquidity support have facilitated a strong recovery — and other economies.
Oil exporters and tourism-based economies face particularly difficult prospects, considering the expected slow normalisation of cross-border travel and the subdued outlook for oil prices.
As noted in the October 2020 WEO, the pandemic is expected to reverse the progress made in poverty reduction across the past two decades.
Close to 90 million people are likely to fall below the extreme poverty threshold during 2020–21.
Across regions, vulnerabilities, economic structure, and pre-crisis growth trends, together with the severity of the pandemic and the size of the policy response to combat the fallout, shape recovery profiles.
Notable revisions to the forecast include the one for India (2.7 percentage points for 2021), reflecting carryover from a stronger-than-expected recovery in 2020 after lockdowns were eased, the IMF said.
IMF projects impressive 11.5% growth rate for India in 2021
IMF’s growth projections for India in its latest World Economic Outlook Update released on Tuesday reflected a strong rebound in the economy, which is estimated to have contracted by 8 per cent in 2020 due to the pandemic.
In its latest update, the IMF projected a 11.5 per cent growth rate for India in 2021. This makes India the only major economy of the world to register a double-digit growth in 2021, it said.
China is next with 8.1 per cent growth in 2021 followed by Spain (5.9 per cent) and France (5.5 per cent).
Revising its figures, the IMF said that in 2020, the Indian economy is estimated to have contracted by 8 per cent. China is the only major country which registered a positive growth rate of 2.3 per cent in 2020.
India’s economy, the IMF said, is projected to grow by 6.8 per cent in 2022 and that of China by 5.6 per cent.
With the latest projections, India regains the tag of the fastest developing economies of the world.
Early this month, IMF managing director Kristalina Georgieva had said that India “actually has taken very decisive action, very decisive steps to deal with the pandemic and to deal with the economic consequences of it”.
India, she said, went for a very dramatic lockdown for a country of this size of population with people clustered so closely together. And then India moved to more targeted restrictions and lockdowns.
“What we see is that transition, combined with policy support, seems to have worked well. Why? Because if you look at mobility indicators, we are almost where we were before Covid in India, meaning that economic activities have been revitalized quite significantly,” the IMF chief said.
Commending the steps being taken by the Indian government on the monetary policy and the fiscal policy side, she said it is actually slightly above the average for emerging markets.
“Emerging markets on average have provided six per cent of GDP. In India this is slightly above that. Good for India is that there is still space to do more,” she said, adding that she is impressed by the appetite for structural reforms that India is retaining.
Budget 2021: 'Centre may double health spending next fiscal year'
India will likely raise its health spending to Rs 1.2-1.3 lakh crore ($16.46-$17.83 billion) in the fiscal year starting April 1, from the current year’s projected spending of 626 billion rupees, the officials told Reuters.
Union Budget 2021-22: Complete coverage
The new healthcare plan is likely to be unveiled on February 1 when finance minister Nirmala Sitharaman presents the country’s budget for 2020/21. The officials did not want to be named as the plan is not yet public.
Even after decades of high growth, the country’s spending on healthcare has been a meagre 1.3% of GDP, way below BRICS peers and developed countries.
The strain of India’s underfunded healthcare system was put in stark relief during the pandemic, with states forced to set-up makeshift Covid care centres and many hospitals struggling to meet the demand for beds and oxygen cylinders.
India has recorded over 10.6 million coronavirus cases, the second-highest in the world after the United States.
Sitharaman is likely to unveil a four year health budget plan with the aim to move India’s healthcare spend to 4% of GDP, with the help of a dedicated health fund, the officials said.
The government could also increase a health tax from the current 1% of income and corporate tax to fund the new programme, one of the above officials said.
Currently it raises about Rs 15,000-16,000 crore annually from the health tax.
Finance ministry did not reply to an e-mail seeking comment on the story.