With Dashain round the corner, the hike in fuel prices could not have been more ill-timed
Nepalis woke up Sunday morning to a shocking price hike in cooking gas, with a cylinder of liquefied petroleum (LP) gas now costing a whopping Rs 2,110 – an increase of Rs 215 overnight. Likewise, the price of petrol, diesel and aviation fuel has been jacked up by Rs 2, Rs 6 and Rs 8 per litre, respectively, effective from Saturday midnight. Thus, consumers will be paying Rs 185 per litre for petrol and Rs 179 for diesel and also for kerosene. The new prices of especially diesel, kerosene and cooking gas will have telling impact on the consumers, especially the poor.
And the sharp increase in the price of gas and diesel could not have been more ill-timed what with the biggest festival of the Nepalis, Dashain, just round the corner. Using every excuse possible, traders have just made all every possible commodity, from rice and sugar to wheat flour, dear in the market in recent weeks. Now add to their woes increased gas prices from Sunday. In a fortnight, people will be leaving the cities, especially Kathmandu, in droves to be home with their families, and one can expect a sharp increase in transportation fares – both bus and plane – anytime soon. What a financial burden on the poor Nepalis.
But we can't blame the government for the steep hike in gas prices or diesel. Nepal Oil Corporation (NOC), the sole supplier of petroleum products in the country, adjusts the prices of POL products every fortnight under the auto pricing mechanism, based on the export prices its counterpart, Indian Oil Corporation (IOC), provides. IOC is the sole supplier of petroleum products, including aviation fuel, to Nepal. The auto pricing system was adopted in September 2014 in a bid to overcome the huge losses runninginto billions of rupees the NOC was incurring by eliminating subsidies on all types of fuel, except LPG.
However, the system stayed dormant for almost nine years, until it was revived this fiscal year from July 2023. The local fuel prices reflect global price changes, which have been erratic since the start of the Ukraine war in February 2022. Diesel prices could go up further if global prices so dictate in the wake of Russia's ban on the export of diesel to stabilise local demand.
Can anything be done to provide relief to the ordinary people? Inflation is already eating into the meagre income of the Nepalis. It is for certain that the student unions affiliated to the different political parties will hit the streets demanding a reduction in fuel prices, which the government might agree to after some time. There have been suggestions in the past to do away with the multiple taxes levied on fuel. But given the open border with India, fuel prices cannot vary drastically between the two countries, as it would lead to mass smuggling of the commodity. Encouraging the use of induction cookers would help bring down LPG consumption, which would also slash fuel import. The government is definitely not in a position to reduce fuel prices even under pressure, but what it can do is see that traders and transport service providers do not take arbitrary advantage of the situation to cheat the consumers mercilessly, especially with Dashain about to start in a fortnight.
Boost confidence
Although Finance Minister Prakash Sharan Mahat has urged industrialists and businesspersons not to be disappointed, there is no room to rest assured that things will improve for the better given the ever rising prices of essential goods during the festive season.
Although the country's macroeconomic condition is in good shape largely due to the inflow of remittances and tourism activities, industrialists and businesspersons are complaining of high interest rates imposed by the banks and financial institutions.
Doing business at high interest rates poses a serious risk to return on investment.
The most important thing to boost the confidence level of the private sector is to make desirable investment by the government in infrastructure development and timely payment to the contractors of government work. Below average collection of government revenue is another indication that the businesspeople are scared of importing goods even though the COVID-19 pandemic has been brought under control. Traditional approach will not help give a boost to the national economy that has already reached the lowest ebb. The government must find areas of investment from the private and public sectors that can help spur the country's exports.
A version of this article appears in the print on October 2, 2023, of The Himalayan Times
