Union Budget 2021: Will Sitharaman Spare The Purse From Oil Price Flare?

Bhubaneswar: With the prices of petrol and diesel ruling exorbitantly high in the country, documentary evidence has come to the fore on how the flare-up is singeing the common man on streets.

In the backdrop of oil price spill, the common man looks up at Union Finance Minister Nirmala Sitharaman for relief as she will be presenting the annual budget on Monday.

Not only common man, but experts are also of the opinion that the time is ripe to control the oil flare-up. Else, the repercussions on the economy will be very hard.

An SBI research study has recently found how the rise in fuel oil prices is crowding out the discretionary spends in the country.

FUEL PRICES ON SUNDAY IN ODISHA

HOW IT IS HURTING?

While presenting the Economic Survey 2021, Chief Economic Advisor to the Union Finance Ministry KV Subramaniam had said, "The once in a lifetime pandemic has ushered in behavioural changes. The pandemic has sapped out the discretionary spending in the country, which led to an abrupt fall in demand of utilities like health, groceries, economical assets like house or durables like cars etc. All of which had a bad impact on GDP"

He, however, had added that with the pandemic situation in the country easing out, the time of uncertainty is apparently over. And the discretionary spending by people in the country will see a 'V-shaped' revival soon.

A REALITY CHECK

A recent SBI study has revealed that COVID19 has brought in many behavioural changes that had a big impact on the discretionary spends in India.

The SBI study has found that the Himalayan rise in prices of fossil fuels is doing the job of COVID19. It is crowding out even the discretionary spends of the people in the country.

THE DETAILS

As per the findings based on the SBI credit card spends, the discretionary spends by people in India crashed to 15 per cent in April 2020 from 35 per cent of total card spending in February 2020.

♣From April onwards, it fluctuated wildly between 15 and 35 per cent, which indicated that consumers had been uncertain over going for discretionary spending.

♣ However, in December 2020, the share of discretionary spends had jumped to 65 per cent of total card spending. But the rise is solely attributed to spending on fuel, not on spending on other items like health, groceries and other utility services.

♣ More grave finding by SBI research team is the oil price flare-up has pushed the inflation in December to 5 per cent as against the CSO estimate of 4.6 per cent.

THE POLICY PRESCRIPTION

The SBI Chief Economic Advisor Tusharkanti Ghosh said, "We demand for an urgent cut in oil prices through tax rationalisation, otherwise, consumers' non-discretionary spending will continue to get distorted and crowd out discretionary expenses as evidenced in December 2020. Moreover, it carries the risk up fuelling inflation rate."

OTHER FINDINGS

Based on SBI card transactions, the SBI research study has found that digital transactions increased in the country during a lockdown, and even after it.

But digital transactions by the elderly have dropped in December.

♣New areas of consumer spending identified. They are broadcasting services and online education.

♣The study attributes the newer areas to staying and working from home.