Since the end of the Second World War, the global order has seen two major transitions. After the War, a bipolar world, led by the U.S. and the Soviet Union, emerged.
Following the disintegration of the Soviet Union in 1991, unipolarity replaced bipolarity, with the U.S. being its centre. There have been discussions for the past several years whether American unipolarity has passed. Now, there are more signs, from China’s rapid rise to Russia’s aggressive foreign policy, to suggest that the global order is undergoing another (third) transition.
While many governments, including India, Russia and China, welcome multipolarity, the U.S. remains the world’s most powerful military power. But the U.S.’s ability to shape geopolitical outcomes is clearly in decline, as was seen in its withdrawal from Afghanistan after 20 years of war or the Russian invasion of Ukraine, challenging the post-Cold War security equilibrium in Europe.
These changes actually leave the world in a flux. There’s a lack of clarity on which direction the world is headed, which makes policymaking harder for middle powers like India.
Non-alignment success
When India became independent, the Cold War was still in its early stages. For a newly free country with enormous challenges in an ideologically and geopolitically divided world, managing its foreign policy itself was a daunting task.
But a long view of India’s foreign policy trajectory would tell us that India, which adopted non-alignment as a foreign policy doctrine, did well in managing most of its challenges. The conventional wisdom about India in the Cold War period was that it was too idealistic.
But that is a simplistic way of reading India’s foreign policy choices. India has actually been flexible in readapting itself to the changes in the global and regional equations.
If in the 1950s, Jawaharlal Nehru had opposed Zhou Enlai’s proposal for a permanent Afro-Asian Secretariat saying it would create yet another bloc, the same Nehru would support turning non-alignment into a movement in the 1960s, after CENTO (Central Treaty Organization) and SEATO (Southeast Asia Treaty Organization) were formed.
If in the 1950s and 1960s, India maintained equidistance from both blocs, living up to the true spirit of non-alignment, in the 1970s, after China fell out with the Soviet Union and started moving closer to the U.S., it started tilting towards the Soviet Union, but stayed out of any Soviet-led military alliances. When the Soviet Union collapsed, India sought to transform its ties with the U.S. and integrate itself with the global economy in the new era of globalisation. But it also maintained close defence and strategic ties with Russia and built a vibrant economic partnership with China.
Present tense
But in making choices, India faces an entirely new set of challenges in the new global disorder. If the centre of the Cold War was Europe, the arena of the looming U.S.-China great power contest is Asia. It is unfolding right in India’s neighbourhood, and even if it stays out of it, it will feel the heat.
Second, during the Cold War, India didn’t have hostile relations with any of the opposing superpowers. Today, India would be tempted to join the American bloc as it faces the China problem.
The power imbalance between India and China, which shared similar economic clout in the 1970s, has widened in recent years. China has also developed a strategic partnership with Pakistan, and is raising its influence in other South Asian and Indian Ocean countries.
Besides, the decades-long border peace between India and China collapsed in 2020 when Chinese troops attacked Indian soldiers in the Galwan Valley in the Himalayas. So on all fronts, India faces the heat of China’s rise. And with China and India rising further, this friction is likely to get more heated.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.