Rising fuel prices is posing a major threat to India, one of the world’s fast growing economies. On the fourth week of May, the wholesale inflation was 8.2% higher compared to the same period last year. Since March, India has been observing a sharp increase in annual inflation. Government has raised the price of petrol and diesel by 10%. Ministers are worried that high price of fuel might create social unrest. Finance Minister, Palaniappan Chidambaram admitted that inflation was problematic and government would take all necessary actions to keep the prices lower. On the contrary, economists are blaming the mismanagement of the government behind the price rise.
BBC reports:
Reserve Bank of India Governor, Y.V. Reddy, has already said the central bank was ready to employ the full range of instruments at its disposal to curb inflation.
Rupa Rege Nitsure, an economist at India's Bank of Baroda, said growing inflationary pressure was due to poor government management of the economy.
"This really puts the fire under inflation and highlights the government's mismanagement in controlling prices as they could have done in a calibrated way, rather than by such sudden measures," he said.
India is now observing rapid industrialization all over the country which is shooting the demand of fuel upwards. Currently, energy costs make up 14.2% of the inflation index and economists are saying that fuel price hike will further increase the inflation rate by 50-110 basis points. Along with fuel and food price rises, cost of transport and feedstock will also increase in the next two or three months.
Indian government should think of both long term and short term programs to keep the price of fuel under control. In short term, the government should focus on keeping the fuel price lower. On the other hand, government should raise awareness among people not to waste energy and encourage the use alternative energy sources to keep the price of energy lower in the long term.
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