Fuel prices — moving beyond polemics

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Pandering to populist slogans alone on the latest upward revision in petroleum products may help opposition parties gain some public support, but such posturing is neither good for economic stability nor for the wellbeing of the most vulnerable segments of the society.
Some opposition parties have threatened countrywide protests if the decision isn’t reversed immediately, ignoring the fact that prices of petroleum products after all rely on adjustments in the international market.
International price of crude oil has been rising since July last year, due to a number of factors beyond the control of the government in Islamabad. And the latest hike in prices has to do also with increase in cost of supply of fuel from the port up country.
That said, it is equally clear that we can rely on a simple knee-jerk approach to revision of petroleum products at our own detriment. Too much is at stake in economic terms, and we cannot afford to go on like this in the long-run.
The government needs to devise a medium-to-long term plan to rationalise our reliance on imported fuel. Such a plan needs to be incorporated into efforts to bridge the current account deficit.
Based on Pakistan Economic Survey, the two largest sectors that consume imported fuels are transport — 57 percent — and energy — 37 percent.
While recent initiatives in the power sector have favoured indigenous as well as renewable sources for generation of energy, the transport sector remains ignored in policy discussions at the national level. For more than one reason, there is an urgent to disincentivise use of private vehicles in Pakistan’s burgeoning cities, yet this conversation has yet to begin. Every year, more cars come on roads than before, and efforts to promote use of public transport remain conspicuous by their absence. It should simply not be acceptable for the authorities to keep adding to the import bill to gratify middle-class led private demand for petroleum products.
Then, there is the issue of indirect taxation on petroleum products. Last year, the government had raised GST on these products by up to 40 percent (for high speed diesel). As a matter of principle, indirect taxation is a regressive policy and is resorted to only because the authorities have yet to correct the imbalance between direct and indirect taxes in the revenue mix.