According to the survey, just 22% of households surveyed said they could deal with the impact of short-term price hikes, 9% said they could tolerate hikes up to 20%, 7% said they could handle hikes up to 10% and 16% can handle up to 5% hikes
By Rajesh Kurup
The Russian invasion of Ukraine would have wide ramifications for India, starting with a curb on discretionary spending, if soaring crude oil prices would push fuel rates further up.
Nearly 42% of households would cut discretionary spending, of which 24% have already cut it to a certain extent, as they cannot absorb the impact of another petrol and diesel price hike. Other reasons for the slash include impact of Covid-19, future pandemic-related uncertainty and projected inflation due to the rising oil prices, according to a survey by LocalCircles, a community-based social media platform.
The platform enables citizens and small businesses to escalate issues for policy and enforcement interventions, and the government to make policies that are citizen- and small business-centric.
“The government will have a choice to make soon to absorb the impact of crude oil price increase by lowering duties and taxes and maintain status quo, or increase prices of petrol and diesel leading to fiscal deficits and hit on discretionary spending and economic growth. If fuel prices go up by Rs 10 a litre, it will translate into overall price increase across sectors, and impact discretionary spending of middle and upper middle-class consumers,” said Sachin Taparia, founder of LocalCircles.
According to the survey, just 22% of households surveyed said they could deal with the impact of short-term price hikes, 9% said they could tolerate hikes up to 20%, 7% said they could handle hikes up to 10% and 16% can handle up to 5% hikes. The survey included 27,000 people from 361 districts.
“A sharp rise in crude prices will be detrimental to many sectors such as cement and construction, leading to a rise in petcoke prices, while transportation and edible oil firms are among others to take a margin impact. FMCG firms would also be impacted as packaging and transportation costs are slated to go up, while a rise in price of edible oil because of a supply fall from the Black Sea region would also impact them. There will be a cascading effect on many other sectors,” Barnik Chitran Maitra, managing partner and CEO of Arthur D Little (India and South Asia) said.
Earnings to dip
Nearly, one in two households surveyed believe that their earnings will dip in 2022 due to the pandemic, geo-political tensions or reduction in salaries or businesses, among others. About 6% expect their earnings to dip by 50% or more, and another 6% expect their incomes to dip by 25-50%.
On the other hand, about 11% households expect their earnings to increase in 2022, while 6% expect income to rise by 25% or more and another 6% expect an increase by 0-25%, while 2% were not sure.
The price of petrol hovered around Rs 100-110 a litre in most cities and that of diesel was about Rs 90-100 for the whole of 2021 — both registering a record high. The only relief was when the Centre slashed excise duties, while state governments reduced the value-added taxes.
At present, petrol is selling between Rs 100 and Rs 105 and diesel between Rs 90 and 95 a litre.
Budget 2022-23 has estimated an average of $75 per barrel. Now the prices of petrol and diesel are frozen in India due to the elections in five states, but analysts estimate a price rise of at least Rs 10 per litre after the polling ends. The Ukraine crisis is also likely to lead to an increase in the subsidy on LPG and kerosene, if the government absorbs the price hike.
