With oil prices zooming past US $ 130 and breaking new highs every week, policy makers have an issue at hand. Having relied heavily on prolific spending of the resources raised through indirect taxation of Petroleum products, the government is now being compelled to reduce the taxation to ensure that the recent spurt in the international prices do not hurt the economy and the poor alike.
This would mean that the government should look at alternate sources of revenue to bridge the shortfall in revenue generation as one can not expect the government in election mode to cut down on freebies / cutdown on salaries etc. The main options are Direct taxes from services and new segments. With large scale retail formatting taking off, it is necessary that the taxman look at ways of cornering the piece of the action. as after all large scale retailing does use more of the public resources.
Export of petroleum products should also be taxed and influential corporate houses can not be allowed to have their say on avoiding the taxation. If refining margins have risen up to US $15 from US $ 6 a few years ago, such company's can well afford to share some of the largesse. I am sure with the capacities available in India, international buyers cannot ignore us.
Two more initiatives need to be put in place simultaneously.
The first and foremost is to discourage the growth of private transport in cities and metropolis. To put in this practice the government should invest heavily in public infrastructure quickly. The other initiative is on natural gas and coal gasification process. Having identified huge reserves of gas we need to ensure that these are brought to market at the earliest possible dates and sold devoid of any subsidy from start. The deceleration of demand on foreign exchange which such locally available sources of energy can bring in, will have transformative impact on foreign exchange management of our currency and fuel the Indian growth engine to newer highs.
