The Financial Literacy Cell
PETROL or PET-out of cont-ROL
Most of the states' petrol prices have either touched Rs.100 per litre or are on the verge of touching the mark. It seems like petrol price is trying to compete with DU cutoffs. But what did actually happen? How did it reach such a high? What triggered it? To get answers to all these questions, we need to take a step back and look at the bigger picture.
During lockdown, every person across the world was sitting at her home and there were least vehicles on road due to which there was a drastic fall in prices of petrol due to fall in its demand which in turn led to decrease in demand of crude oil in international markets. During the month of April 2020, crude oil prices went as low as $19.22 per barrel at that same point petrol price was around Rs.69 per litre in India. Since the pandemic broke out, to now, Indian oil prices rose to their highest Levels after Saudi Arabia announced a big voluntary production cut and a steep fall in U.S crude Inventories even though rising initially crude oil prices did see a fall but the petrol and diesel prices still remain unchanged even with the low crude price. Why are petrol and diesel prices still high in India? Can you blame it on India's petroleum's tax structure?
It might or might not be true. Consumers always have to bear the pain here and pay more because of the deregulation of oil prices. Due to deregulation the base price of fuel increases. Deregulation means that retail prices of oil or fuel will be moving in proportion to the prices in the global market. Petrol and diesel prices were deregulated in 2010 and 2014. Due to which there is a immediate impact of change in crude oil prices over domestic petrol and diesel prices.
This situation could have been handled smoothly if the government had reduced a portion of central tax on petrol. Currently, Only 1/3rd of price which a consumer pays is the real base price of petrol, rest 2/3rd portion just consists of taxes. Current data shows that the central government is collecting more taxes on petrol as compared to state governments. Central government levies tax around Rs.33 per litre on petrol in comparison to Rs.20 per litre charged by state government.
As the Centre imposed the first lockdown in March 2020, it had raised excise duty by Rs.13 per litre for petrol and Rs.16 per litre for diesel from March to May 2020. Also, crude oil prices at that same time hung around $19.9 per barrel. Now as the economy is opening up, the government ethically should reduce the heavy taxes which it imposed during pandemic but there’s something else happening here. Instead of reducing the taxes and saving the consumers the government is looking to fill its own pockets and compensate for the losses it suffered due to the pandemic.
Also in the Budget 2021, Finance minister Nirmala Sitharaman introduced Agricultural Infrastructure and Development CESS which will increase the petrol and diesel prices by Rs.2.5 and Rs.4 per litre respectively. However, in her speech she also stated that it has not been imposed yet and will not accrue any additional burden on the consumers. This CESS has only been imposed on gold and silver as of now.
Due to frequent changes in fuel prices, it may also dent your budget for essential and other commodities. If these higher petrol prices prevail for a longer time it may lead to a rise in Inflation in the economy making other goods expensive too because it increases the cost of transportation across the country. Moreover, due to rise in transportation cost, it will also lead to rise in the cost of International travels, holidays and increasing overall cost of the trading sector. Interest rates may also rise due to a spike in Inflation and lead to lower loan grants.
If the same continues we might have to suffer even more because now crude oil has risen to $66 per barrel and it will push the current petrol prices even higher, which might create a lot of problem to the middle class as it will now cover a major portion of a household’s budget.
By Kamendra Rundla