How higher petrol price and diesel prices impact you

by Mr. DJ

How higher petrol price and diesel prices impact you

How higher petrol and diesel prices impact you : Petrol is now retailing above Rs 90 per litre in all major cities including Delhi and is on the verge of crossing Rs 100 in major cities. It has already hit a century in some circles. Diesel, too, has climbed to levels never seen before in the country. Here is how it affects you:

The rising price of petrol has led to an interesting development in states which border India’s neighboring country Nepal. Petrol is cheaper by around 22 there.

How higher petrol price and diesel prices impact you

According to Hindustan Times’ sister publication Livehindustan, some people in Bihar’s Araria and Kishanganj are crossing the border using narrow tracks, away from the main roads, to smuggle in the petrol. Many such people have been caught by local police and SSB jawans, Livehindustan reported.

While petrol is retailing at 93.50 per litre in Bihar’s Araria, it is available at 70.62 in Nepal, according to Livehindustan.

Nepal gets the supply of petrol from India. According to an old treaty between the two countries, Indian Oil Corporation (IOC) imports petrol for Nepal from the Gulf countries. It is sold at the cost price, only refinery fees is charged due to which the fuel retails cheap in the Himalayan country.

“The smuggling of petrol from Nepal is affecting the sales in domestic market,” said Sudhir Kumar, who owns a fuel station in Jogbani town.

The Deputy Inspector General (DIG) of SSB, SK Sarangi, was quoted as saying by Livehindustan that patrolling has been intensified in border areas. Kishanganj SP Kumar Ashish said the patrolling will be done along with SSB and instructions will be given to all police stations.

There are many areas in interior parts of Bihar where people easily cross the border through narrow tracks. The petrol that is brought in illegally from Nepal is sold to small retailers at less price.

Meanwhile, petrol price was hiked by 34 paise per litre and diesel by 32 paise on Thursday, according to a price notification of state-owned fuel retailers.

After the relentless hike over the last 10 days, petrol is nearing 100 mark in many cities across India.

Fuel prices differ from state to state depending on the incidence of local taxes such as VAT and freight charges. Rajasthan levies the highest value-added tax (VAT) on petrol in the country, followed by Madhya Pradesh.

Why Is The Petrol Price Rising?

The rise in price is due to increase in taxation by the centre and the state, to make up for loss of revenue during the lockdown. Excise duty by centre and VAT by state govt escalates prices.

While a lot of us are still working from home, the ones who must move out are increasingly switching to personal vehicles to maintain social distancing. At a time when prices are as high as that of October of 2018, we are under the impact of sky-rocketing fuel cost more than ever before.

With the discovery of a new strain of Corona virus discovered in UK, crude oil prices have started declining yet again. However, the average Indian consumer is yet to reap its benefit.

What are the core reasons behind the increasing oil prices?

· India imports 84% of its domestic demands of crude oil, which is why the price fluctuates in tandem with global demand. The impact of COVID 19 on the economy and decreased fuel demand initially led to a fall in global oil prices. Now with the market recovering, prices are slowly showing an upward trend. The prospects of developing a Covid-19 vaccine is also a key reason for economic optimism.

· Since Corona virus has hit the economy substantially, to overcome the situation, state governments have increased the duties on petrol and diesel. In fact, taxes constitute 69% of the total price of petrol that we as consumers pay. For example, excise duty on petrol has increased to Rs. 32.9 from Rs. 19.98 at the beginning of the year.

· From the standpoint of pure economics, exchange rate has a profound impact on the amount of oil India can purchase in the international market. This implies we are

able to purchase less oil with the same amount as we did earlier. Inversely, the government needs more money, to import the same quantum of oil.

· Presently the price of petrol and diesel in the National Capital remains unchanged from the week gone by at ₹ 83.71 per litre, and ₹ 73.87 per litre respectively. While in Mumbai, petrol and diesel rates were at ₹ 90.34 per litre and ₹ 80.51 per litre respectively.

The rise in price is due to increase in taxation by the centre and the state, to make up for loss of revenue during the lockdown. Excise duty by centre and VAT by state govt escalates prices. The tax collected is used by the central government to balance the fiscal situation. At 69%, India is one of the most highly fuel-taxed countries in the world, with Italy following at 64%, and USA at a minimal 19%. The exact breakup of petrol prices can be seen from the chart below:

Rajya Sabha member and noted economist, Subramaniam Swami expressed his apprehension on the rising fuel prices,

“Petrol price at Rs. 90 per litre is a monumental exploitation by GoI of the people of India. The price ex-refinery of petrol is Rs. 30/litre. All kinds of taxes and Petrol pump commission add up the remainder Rs.60. In my view petrol must sell at max. Rs. 40 per litre.”

· At this stage it is relevant to note, that the petrol price is largely driven by international agencies which control demand and supply. On the international front, for example, OPEC (Organization of the Petroleum Exporting), countries decided to cut down oil production by 10 million barrels a day, hoping to boost energy prices.

Impact on common man:

Increase in petrol prices will impact the cost of production and manufacturing on energy input industries. Given that almost every industry is driven by energy, he cost of which ultimately boils down to the consumer. This will ultimately have a negative impact on the scale of production. This may prove counter productive if the prices increase further leading to a collapse in demand.

Usually, when fuel prices go up, we see an inflationary impact and depreciating exchange rate. This will impact anyone owning a business which involved foreign currency. An industry insider who wishes to remain anonymous has noted:

“Diesel has a secondary effect. Since all the trucks run on diesel, it will increase the freight cost, which in turn finds its way to increasing price of food grains, goods and other products.”

The rising cost of diesel will thus hurt the common man. Most of the public transport systems run on diesel in most cities. The bus ride cost will go up. Over and above, India is at a retail inflationary high of 7.6%. The increasing gap between job losses and rising prices can be deadly for the economy and the economy.

The price rise may lead to some hardship on the part of the consumer. However, taxation is an important part of welfare state, and the impact of a higher tax will be seen in the long run.

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