Faced with a tough political call over high fuel prices, the Modi government is looking to stick it out, calculating the global rally in crude is likely to lose steam and this will ease the squeeze consumers are currently experiencing. Well-placed sources said while high fuel prices were problematic, the government may be reluctant to consider responses such as cuts in excise to reduce pump rates.
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This would affect revenue collection and reduce availability of funds for welfare programmes, while also adversely impacting fiscal discipline that has kept inflation under check. The view in government is that the rally is unsustainable since it is not based on market fundamentals. Indeed, oil prices have slipped by $2 per barrel in the last two days after Opec kingpin Saudi Arabia and its partner outside the grouping, Russia, hinted that they may agree to wind down the two-year production cut deal.