Absorbing fuel price shock

Rising prices of petrol and diesel have punched more holes in the pockets of farmers, commercial transporters, and private vehicle owners. Devastated by lockdown during the COVID-19 pandemic and ravaging flood waves, many farmers in Assam are in dire need of subsidised diesel for their agricultural production to remain remunerative. Diesel prices have crossed Rs 80 a litre mark and petrol price has been hovering around Rs. 84 a litre in the state. The price of Indian crude basket has remained at 40.83 US dollar per barrel, about 42 per cent less than 71 US dollar per barrel in April 2019-20. A rise in the price of Indian crude basket will lead to further increase in retail selling prices of petrol and diesel unless the Central government steps in cut the excise duty to provide a cushion. The Central government increased the excise duty of petrol by Rs 10 per litre and of diesel by Rs 13 per litre in May which prevented the benefits of fall in the prices of crude being passed on to the consumers. Assam government also increased the taxes on fuel following which price of petrol went up by Rs. 5.85 a litre and of diesel by Rs 5.43 a litre. Rise in diesel price has resulted in increase in the cultivation cost and has created hurdles in doubling the income of farmers. The diesel price hike also results in increased cost of transporting the seeds and fertilisers. The cost of transportation of harvested produce to the markets also rises due to hike in fuel costs. Rising input cost upsets the farmer's calculations. Growth in farm mechanisation in the state has pushed up the demand for diesel in the agriculture sector. Tractors account for 4.33 per cent diesel consumption, agricultural implements account for 2.99 per cent and agricultural pump account for 1.98 per cent of the total non-transport diesel consumption in the state. To help the farmers double their income the State government has been providing one tractor to a group of eight to ten farmers in every revenue village under the Chief Minister's Grammya Unnayan Yojana. The State government provides up to 70 per cent of the cost of the tractor subject to a maximum of Rs 5.5 lakh, 20 per cent is bank credit and 10 per cent is the margin money. Use of tractors has also increased among marginal farmers and sharecroppers. They take the tractors or power tillers on rent for preparation of their land and have to pay the charge the owners ask for depending the price of diesel. Use of tractors and power tillers save time and therefore the marginal farmers and sharecroppers also do not want to lose out on time and go for mechanised farming. Increase in diesel prices have already resulted in higher charges of hiring tractors and power tillers. While input cost of agriculture has gone up every season, the selling price of paddy remains stagnant at Rs 400-500 a maund. In absence of an effective mechanism to ensure payment of Minimum Support Price fixed by the government and very low procurement of paddy by the State Government, the farmers are compelled to go for distress selling at such low prices even when the input cost have gone up. The State government cannot lose sight of the fact that about 86 per cent of the farmers in the state are marginal with individual land holding up to one hectare and together own about half of the state's total agricultural land. According to the National Bank for Agricultural and Rural Development, the state has about six lakh sharecroppers which is about 14.77 per cent of the total 40.61 lakh farmers. The retail selling price of diesel was Rs. 71 when Chief Minister Sarbananda Sonowal inaugurated the tractor distribution scheme in December 2017. Diesel price hike has also created additional burden on commercial vehicle sector engaged in public transport. Because of the restrictions of allowing only 50 per cent of the total passenger carrying capacity due to pandemic situation and hike in fuel prices the public vehicles are charging the passengers increased fares. In Assam private cars and utility vehicles account for 15.80 per cent of the total diesel consumption in the transport sector state, commercial cars and commercial vehicles account for 15.90 per cent, heavy and light commercial vehicles account for 29.60 per cent and three wheelers account for 16.50 per cent, according official estimates of the Petroleum Planning and Analysis Cell of the Ministry of Petroleum. A holistic analysis and comprehensive assessment of the prevailing situation will present before the State Government the harsh reality that if fuel prices keep rising then it will cripple the agriculture and the transport sectors. The cascading impact and the resultant shock will be too big for the state economy to absorb.