Reason for fuel price hike and devaluation of Rupee- who is to be blamed?

Rupee devaluation and fuel price are hitting record high values in past few days. Let’s get through the reasons for the issue and will decide whom to blame for this crisis.

First thing we need to understand here is, you can’t separate fuel price hike and rupee devaluation as both are interlinked. Confused? Let me explain to you how. India imports 80% of its crude oil from other countries majorly from Iraq.

So how does India pay for this crude oil?

India pays in Dollars (USD) for this crude oil as it is accepted globally for trade and considered to be a very strong currency. Every litre of crude oil you use (or waste :P)  you pay in rupees while Indian government needs to pay them in US Dollars.

So how India gets this USD?

India has a Forex reserve of USD 405 billion(approx.). So, every time it needs to pay a crude oil company it has to pay from its Forex in $(USD).  Which in turn increases the Fiscal Deficit(Revenue-Spending) of the country. Which is not good as India is spending more than what its earning.

How does it devalue rupee?

Since India is importing more oil, it creates a trade deficit with other countries. In short India is falling short of USD. Thus, you need to pay more to buy a USD. This in turn devalues Rupee.

Why is the fuel price increasing?

Even though there is a small increase in crude oil price, you see a drastic increase in the fuel price. That is because, Indian govt is adding many taxes. This tax is nearly 50% of the cost you give for fuel. Indian government increases the tax so that it discourages people to avoid using petrol/diesel.

Who is to blame for this?

Everyone has an equal responsibility to be blamed. From citizen to the government. As a citizen, it is our duty to contribute to the society. In India, most of the household has a habit of saving gold for future. This gold which you save is indirectly USD. How? Because India does not have any Gold mine. Even gold, India has to import using USD. But we buy gold and keep it as an non performing asset. Hence every gold you keep is equal to USD being held of no use. Indian govt has taken steps to reduce the investment in physical gold by providing gold bonds, which yield you good interest at the end of  a tenure. India, as a responsible govt, has to create an infrastructure to adopt e-bikes/cars and promote its use by providing low cost refiling stations.By which it can reduce the usage of other fossil fuels. So you decide, who has to be blamed for this situation and comment below on your stand.