Hardly any gain from balance sheet supporting fuel hikes: Dr. Narayana

By Shabiya Ali Ahlam
Sri Lanka’s recent fuel hike will bring little or no benefits to the national economy, if the increase was carried out by the government to support the country’s balance sheet, a former economic advisor to the Indian Prime Minister said.

As the upward revision was met with lot of resistance by the people and the business community as it comes at a time when the country is struggling to make ends meet due to the implications stemming from pandemic, Dr. S. Narayana stressed the need to communicate to the nation the purpose of the fuel price increase.

“From a finance point of view, I do think one should look at for what this price increase is happening for. Is it happening just for fiscal consideration, or is it happening to balance out some welfare expenditure, which otherwise will not happen,” said Dr. Narayana, who is also an ex-secretary to India’s Ministry of Finance.
He was addressing a session hosted by Colombo-based think tank Advocata Institute yesterday themed ‘Pricing Fuel & Energy: Lessons from India’.

He stated that if the increase is to balance the welfare expenditure, and not for the government defense or infrastructure expenditure, then the people would understand.

However, if the increase is merely for balance sheet support, then it is “not a good way to go about,” cautioned Dr. Narayana.  

Meanwhile, he highlighted that although almost all segments of the economy have to deal with the pain of increased fuel prices, the rate of high taxation on petroleum products cannot continue forever.

He pointed out that as inflationary pressure expands, the government will find it “extremely difficult” to maintain the high level of taxation.

Furthermore, as Sri Lanka looks to incorporate eco-friendly measures to its development agenda, Dr. Narayana suggested that the country should move away from being diesel dependent and towards petrol as the latter is much more efficient in combustion.