Astronomically-rising petrol prices have hit Indians like never before. From huge corporate transport companies to the moped-dependent rural poor, vendors are suffering alike.
Only the stinking rich and guys loaded with black money are having a good laugh as the phenomenal price rises excite them to be able to spend lavishly without being affected adversely on any front. But the resiliently-tolerant Indians take the pain in their stride and relieve themselves by joking over the comparative prices in Nepal and Sri Lanka: It is Rs 68.89 in Goddess Sita’s Nepal and Rs 60.62 in demon Ravana’s Sri Lanka while in Mumbai, the financial capital of India, petrol costs Rs 92.86 per litre.
In October 2020, the Union Government had publicly stated that petrol and diesel taxes would be increased to mobilise additional revenue for Covid-19 relief.
But ironically, a recent RTI reply reveals that the Modi Government has been selling petrol to 15 countries at just Rs 34 per litre and diesel at Rs 37 to 29 countries including Great Britain, Australia, America, Malaysia and Israel, betraying and backstabbing the people of India. When Modi became Prime Minster in 2014, petrol in Delhi cost Rs 71. Today, it costs Rs 88. Diesel price has shot up to Rs 80 from Rs 57.
Much of this increase has happened in the last one year when people lost jobs and incomes and inflation soared.The Indian Government has enough scope to cut fuel prices since two-thirds of it is tax only. But it is using taxes on fuel to make up for its revenue losses as economic growth turned into recession meanwhile. The oil price decontrol is a one-way street. The consumer never benefits. As clarified by oil companies, there is no immediate change in retail prices.
Since 2015, the Union Government has used the continuous fall in crude prices to make money by increasing effectively the retail prices of petrol and diesel within a narrow band. If the benefits of fall in global crude oil prices were fully passed to consumers, the retail price of refined products would have been lower by Rs 0.50/litre for every $1/barrel reduction in crude prices.
But for every $1/b reduction in crude prices, the Government increased taxes by Rs 0.50/litre. Thus, the burden of tax increase has fallen on diesel because of huge quantum of consumption. In March 2014, diesel was cheaper than petrol by about Rs 15 on an average across the country. Taxes account for 31% from petrol and about 19% from diesel, respectively. In fact, madly high petrol-diesel pricing was one of the reasons that led to the fall of Manmohan Singh-led UPA-2 Government in 2014.
People may not know that the crude oil is still below the 2018 levels. But the Indian government sets the price mercilessly high only to earn easy revenue. Many ingredients go into the boiling broth that is fuel prices. First, the pricing mechanism.
The price of petrol and diesel in India is not determined by the actual costs incurred by PSU refiners such as Indian Oil, HPCL and BPCL on crude oil sourcing, refining and marketing. Rather, a formula, trade parity price (TPP), is used to price these products. It assumes that 80% of petrol and diesel is imported into India and only a mere 20% is exported. So, prices in India are determined based on prices of these fuels in the international market and not on the basis of crude oil prices.
While international petrol and diesel prices are determined by crude oil prices, it need not always be the case because the demand-supply dynamics keep changing strangely. Therefore, prices have not changed even after the global crude prices have been rising to $50 a barrel, up from the Covid-induced low of about $20 in April. Then come other costs and margins of the oil companies, dealer commission and taxes.
From mid-June 2017, the pricing of petrol and diesel is being done through a ‘daily pricing’ mechanism, based on a 15-day rolling average of international rate. So, time lag has an effect too. Worst of all, the weakening of the rupee against the dollar over the years has added to the fuel’s cost. For long, petrol and diesel have remained the Government’s cash cows. During the crude crash earlier this year, a cash-strapped Centre raised excise duty on petrol and diesel by ?13-16 a litre; so did the States by increasing Sales Tax/VAT. But when oil prices started rising, the taxes were not rolled back. Fuel prices increased and customers bore the brunt. Taxes alone account for about 60% of the fuel price.
Companies like redBus, Edelweiss, WhiteHat Jr have not only managed to continue doing business during this pandemic but also break new grounds in their industry through failsafe efforts of super skilled sales forces.
Finally, there are the many mystery pricing pauses. For more than 80 days between March and June when they should have fallen, the fuel prices were frozen. This stop-start method leads to opacity in pricing.
Though India imports most of its oil needs, it is more than self-sufficient in petrol and diesel production. So, the trade parity pricing mechanism has often been criticised, especially since petrol and diesel are ‘decontrolled’ fuels for quite some time. There is big displeasure over cartelisation of the three PSU oil companies charging nearly the same price, despite different cost structures and efficiencies.
To dispel public suspicion about pricing principles which are religiously kept hidden at all times, the real factors of pricing, based on market principles, should be informed to the consumers in a truly transparent manner.
Every outlet has to put up boards to let the consumer know how the prices are being determined. It is also a Constitutional right of the consumer to know the basics of anything routed or distributed publicly by the state agencies.
Any fuel price rise causes big impact on the ordinary consumer’s pocket because of higher personal transport costs. It also causes an unusual price spike in a host of goods and services, given that these fuels play a big part in running the economy’s wheels. Inflation rears its head instantly when popularly used fuels become costlier.Venezuela has the cheapest price, just $0.02 per liter followed by Iran ($0.06). Among the top ten cheapest, six countries are located in Asia, three in Africa, and one in South America. Hong Kong has the most expensive price of $2.30, followed by Central African Rep. and Syria.
Interestingly, Qatar and the USA are among the top 10 richest economies that have very low gasoline prices below $1.Today, India is neither very poor or rich. It’s a fast developing country because of a big population and too many economic activities happening around here.
The Government must stop exploiting the masses on the fuel front. There are scores of areas where discreet application of mind and resources would bring in more money. Farm and MSME sectors are just two glaring ones of those, just for instance.