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Explained: The Real Reason Why You’re Paying So Much For Petrol And Diesel

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The price of diesel and fuel is something which impacts everyone. From the farmer who is dependent upon the diesel pump to the truck driver who has the duty of driving all night. It is one thing whose price is directly felt by the consumer.

The current price of diesel in India is at its highest in the last 16 years. And the price of petrol is currently quite high as well. On Wednesday, at 6 am, it was र77.17 in Delhi, र79.83 in Kolkata, र84.99 in Mumbai and र80.11 in Chennai. The hike was in the range of 29-32 paise per litre in the four metropolitan cities.

So, Why Are The Prices Currently Very High?

Firstly, we must remember there are certain global factors which determine the price of crude oil all across the world, which in turn determine the price of both petrol as well as diesel. One of the reasons for the recent hike is indeed because of the surge in the prices of crude oil.

What are the global factors which are responsible for it?

1. US President Donald Trump’s announcement that the nation would walk out of the Iran nuclear deal was one of the reasons for the surge.

2. Due to the political instability in Venezuela, a major oil-producing nation in the world, there has been a huge cut in the production of oil in the country.

3. In order to keep oil prices higher, there have been production cuts for over a year by oil-producing countries led by Saudi Arabia and Russia.

Since these three reasons ensure that supply of crude oil is tight, it is getting more expensive. Fall in supply ensures rising prices.

The price of crude oil currently is around $80 a barrel.

However, the prices of oil have been pretty high in India for a really long time. The crude oil price at $80 a barrel is currently very high and is actually the highest in three years. However, it’s not as if the price of petrol and diesel in India reduced when crude oil was available for cheap. In January 2016, crude oil had fallen to $30.34 a barrel. But the prices of oil and diesel continued to remain the same because governments increased taxes accordingly.

How is the price of petrol and diesel calculated?

These are the things for which the consumer has to pay:

– Price which is charged to the dealers by the oil companies, which they buy from the refineries.

– The commission which the dealers charge

– Duties levied by both the central and state governments.

Petrol and diesel also end up being a bit costlier since the value of rupee is very weak compared to that of the dollar. Since it has to be imported at a much costlier price due to the value of rupee. Especially now, since the India rupee is currently devalued a lot.

The Politics Behind Fuel Prices

Interestingly, the prices of fuel all over India did not change from April 24 to May 13. However, just two days after the voting for the Karnataka elections took place on May 12, the prices increased again. Between May 14 and May 20, the price of diesel increased by र1.65 a litre and the price of petrol by र1.62 in Bangalore.

The prices of both petrol and diesel in India are amongst the most politicised issues in the country.

In May 2012, when the price of petrol increased by र7.54, Narendra Modi, the then chief minister of Gujarat spoke up strongly against it.

However, when he became the Prime Minister and the price of crude oil crashed, the taxes were actually increased and the price on the consumer remained the same.

Ever since the new government has come to power there has been a steady increase in the central excise duty which has been put on both petrol and diesel. The only time it was reduced was in October 2017.

For example, in January 2016, the price of an oil barrel in dollars was less than $31 but since taxes were at a high, the price of petrol or diesel did not reduce at all.

Similarly, the taxes levied by the state governments are also pretty high. But they vary from state to state. For example, Goa levies 17% tax on petrol while Maharashtra levies 46.52% value-added tax.

Many consumers and experts criticise such high prices since they have to directly pay the financial brunt of it. Especially in a poor country such as India.

How expensive fuel and diesel is for an Indian consumer becomes clear when one compares the price of both diesel and petrol with neighbouring countries such as Pakistan and Sri Lanka. Currently, Indians have to pay 35% more for petrol than people in Pakistan. Even when compared with Sri Lanka, Indian consumers are at a loss. Sri Lankans pay 20% less than their northern neighbours.

In case the prices of petrol and diesel are brought within the ambit of the Goods and Services Tax, it is believed that the prices of both the essential commodities would become same all over the country. And it would also definitely help the consumers the most – since even if it is placed under the highest slab of GST – i.e. 28%, it would result in a much lower retail price for the consumer.

The current rise in both fuel and diesel prices has been a huge topic of debate in India’s current political discourse. It is difficult to predict what the consumer can expect in the coming days but this certainly is under the radar of the governing party in India currently.

Even the president of the Bharatiya Janata Party Amit Shah said, “We are taking increase in fuel prices very seriously… oil prices have increased according to a set formula. We are working on the situation at the highest level. Our people in the government will come up with a solution in three-four days.”

However, Rahul Gandhi is putting pressure on the current NDA Government and has threatened that his party will do a nationwide agitation if fuel prices are not reduced. He recently tweeted:

 

While the price of crude oil is a major factor which determines the price of diesel and petrol, the burden on the financial back of the Indian consumer is eventually in the hands of both the central as well as the state governments. But as we have seen, the taxes are decided not necessarily keeping welfare in mind but on how much it will benefit the governing party politically.

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Image source: Nicolas Mirguet/ Flickr
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