How Indian Govt is Managing Oil Price Now ?
Let's say you got a big loan and recently got a huge bonus at your workplace. Would you want to spend all the bonus immediately or use part of the bonus to pay some of the loan? Would you not consider it prudent to pay a part of the loan in good times so that you will have the flexibility to take more loans during your bad times? This is what the government is doing now and is a sound fiscal policy. Government had a huge addition to its debt caused from past fuel subsidies. Now that the oil prices are low, it is time to pay a part of that debt. This is useful for multiple reasons: The increase in excise tax provides a stability valve and a cushion. When the oil prices increase again, the government can first cut the excise duty before increasing the price at the pump. This is what the government did in the previous times of increase. If the oil prices increases too fast that cannot be controlled by a cut in excise & cannot be quickly passed to the pump, the government can bring