Since January 1, 2020, there has been a 38% increase in the prices of petrol and 20% in the case of diesel. To understand why the prices are so erratic in India, we need to understand that 84% of crude oil requirements are imported from countries such as Iraq, Saudi Arabia, UAE and Nigeria.
The price of crude oil depends on two major factors: the international market price and the GST on the commodity. Now one might ask why the government doesn’t regulate the price of crude oil since it is considered an essential commodity. This wasn’t the case until mid-2010 when the UDF government under Dr Manmohan Singh deregulated the price of petrol, as a result of which the price of petrol changed every fortnight, thereby removing the cushion against price spikes.
Later, in 2014, diesel was deregulated, too. Since then, the prices of petrol and diesel have been controlled indirectly by the government through its taxes. This has led to a steady price increase irrespective of the international price of crude oil. The Central, as well as State governments, levy double the amount on the base price of crude oil as taxes.
Government’s Say On The Tax
As of now, Indians are the highest fuel taxpayers. The Government of India justifies its taxation on fuel by stating that the revenue is used for various developmental schemes undertaken in the country as well as various reliefs programmes for the unprivileged during the pandemic.
Since January 2020, we have seen an increase of Rs 25 to 31 per litre in petrol. The government says that due to a stark decline in the fuel demand during the first and second waves of the pandemic, the supply went up as prices went low. As restrictions started getting lifted and people got vaccinated, the economy got back on track, thereby creating a sudden increase in demand for fuel.
Effects Of Price Hike
The Covid-19 pandemic crumbled the world economy as the wages of many took a hit and unemployment soared. As the country recovered from the effects of the pandemic, common people were made to face the heavy burden of crude oil prices as they kept increasing regularly and are unlikely to change trajectory.
The rate of inflation of crude oil has not only affected motor vehicle owners but people from every sector of the economy — be it farmers whose machines run on fuel to airline companies that spend tons of cash on fuel. The cost of essential commodities such as vegetables, fruits, and every other basic commodity have also been victims of the fuel price hike.
Fast-food chains are finding it difficult to keep up with gasoline prices on one hand and the unwillingness of the customers to pay for the hike on the other. In various households, people have started using alternative methods for cooking. Transport prices have skyrocketed to almost 40% more.
The common person is finding it hard to sustain this life. For students, the price hike in crude oil is a crucial episode and has been seen to affect several aspects of their life. Companies are recruiting fewer employees, especially since the pandemic. There are families where teenagers are being forced to quit their studies and find a job to sustain the household. But the pandemic hasn’t come anywhere near an end as we see cases coming up due to negligence and a rise in the cases of the Omicron variant across India.
Back in July 2017, when GST was introduced, five commodities were excluded from the list: crude oil, aviation fuel, natural gas, petrol and diesel. The main reason for doing so was because fuel tax accounts for a lion’s share of the revenue for the central and state governments.
Kerala Chief Minister Pinarayi Vijayan has been constantly urging the Centre to rethink its GST policies so that the heavy tax that common people face can be reduced. Considering the current scenario, the Center is under pressure to make radical changes and bring crude oil prices under GST, thereby reducing the price of crude oil, which will have a positive chain reaction in the market.