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Why petrol prices are rising?

Last Updated by Deepanshu 24-Feb-2021

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The petrol prices in India recently crossed a Rs 100 mark in a few places of Rajasthan and Maharashtra. The other places also witnessed prices not less than Rs 90 per litre But worry not, according to our government, it is good for the taxes, the more you buy, the more tax goes to the government’s treasure. The government blames the previous government’s policies and the pandemic for the rise in the prices of petrol and diesel. Apart from that, they fail to give any strong answer to the prices hitting a century. 

Before we start discussing the reason, we should have a look at how the prices are decided for the fuels. Before 2010, the government of India used to decide the prices of petrol and diesel. This put the government under a lot of pressure to keep the prices low for the consumers. Keeping that in mind, in 2010, the government introduced “deregulated” prices for petrol which was directly affected by the global crude oil rates. The prices were announced every 15 days. In 2014, diesel’s prices were also “deregulated” by the government. On 16 June 2017, the government decided to announce the prices daily instead of once every fortnight so that a small fluctuation in the global market could affect the Indian market and according to Government, the rise in global prices are now increasing and affecting our prices. This whole explanation leads to a simple question, Why were the prices not decreased when the global rates even hit a negative price during the pandemic? 

To understand this, first, we need to breakdown the prices of petrol and diesel. As of 1 January 2021, the price breakdown of petrol and diesel were as follows:

Petrol(per litre) price to the customer(On 1 January 2021, Delhi): Rs 83.71

Base price: 27.37

Freight levy: 0.37

Excise duty: 32.98

Dealer Commission: 3.67

VAT: 19.32


Diesel(per litre) price to the customer(On 1 January 2021, Delhi): Rs 73.87

Base price: 28.32

Freight levy: 0.34

Excise duty: 31.83

Dealer Commission: 2.53

VAT: 10.85


Notice how the excise duty on the prices is even more than the base price of the fuel. Now let’s break down the current prices of the market.

Petrol(per litre) price to the customer(On 16 February 2021, Delhi): Rs 89.29

Base price: 31.28

Freight levy: 0.28

Excise duty: 32.90

Dealer Commission: 3.68

VAT: 20.61


Diesel(per litre) price to the customer(On 16 February 2021, Delhi): Rs 79.70

Base price: 33.46

Freight levy: 0.25

Excise duty: 31.80

Dealer Commission: 2.51

VAT: 11.68


These statistics were from the Delhi prices, where the VAT was relatively less compared to other states where the prices hit the Rs 100 mark. Here is the list of prices of petrol and diesel in different parts of the country.


The increase in excise duty by the central government in just one year is very significant in the increase of prices of the fuels. The excise duty on petrol rose from Rs 19.98/litre at the beginning of 2020 to Rs 32.98/litre at present. The excise duty on diesel rose from Rs 15.83/litre at the beginning of 2020 to Rs 31.83/litre at present.


When the current govt. came into power, i.e. in 2014, the excise duty on petrol was around Rs 11.02/litre and on diesel, it was Rs 5.11/litre.

Let us quickly move back to 2013-14, during the previous UPA-2 government led by the Indian National Congress(INC), when the prices of petrol hit Rs 70 due to the rise in the international price of $110 per barrel compared to the current price of $54 per barrel. 


Even when the international prices hit a low of $20.20 per barrel in June 2020, the central government didn’t decrease the prices for the citizens and blamed the pandemic and fiscal deficit on the country. 

Here is the representation of petrol prices in India(in Rs/litre) with respect to the International Crude oil price(in $/barrel)


See how the international prices decreased drastically after 2013-14, but the prices in India went to increase at a great pace even though, according to the government, the prices will be directly affected by the international prices.

Impact of the rise in price

  • Direct impact on daily consumers: The daily commuters face the worst issues as they have to limit their monthly expenses in order to buy fuel for their vehicles.
  • Impact on the Automobile Sector: The automobile sector will see a sharp drop in customers as people will avoid buying new vehicles, the drop in demand will lead to more people from these sectors being unemployed.
  • Smuggling: In some part of Bihar, neighbouring Nepal, people travel to Nepal for buying fuel and claim to have saved at least Rs 20 per litre as the price there is much less as compared to our country.
  • Inflation: The rise in prices directly affect the transportation sector, on which the whole market depends. This will lead to rising in the transportation price, thus, increasing inflation.
  • Delay in economic recovery: Our country is going through the biggest economic crisis ever witnessed, the rise in the price of fuel will delay the recovery in the country's economy.

Conclusion

After gathering all the data and information, we came to the conclusion that Indians pay 10 times the amount the price paid by the developed countries when compared through their per capita income. The government fails to provide a solid reason for the rise in excise duty on fuels. Even when the international prices were as lows $20.20 in May-June 2020, we were still not given benefits on the pricing. The excise duty on petrol and diesel were increased up to 3 times and 6 times respectively during the 7-year reign of the current government. And now, when the global prices are once again rising, there are no chances of this price dropping down.

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