What led the upsurge in prices of petrol and diesel?

The harsh reality of petrol prices in India today is that these are aligned with the global crude oil prices, this alignment is the approach adopted by the Modi government since 2014, said an oil expert. The reason why Modi government has adopted this approach is the good income it gets from taxes everytime we fill our fuel tank.

There is nearly 132% taxes on petrol and roughly 100% taxes on diesel. The taxes in India are the highest in Asia; Pakistan taxes only 30%, Sri Lanka 37%, Thailand, and Malaysia around 30% only. Diesel prices too are being aligned with global oil prices, today the prices of diesel are around Rs 77/liter when global crude oil too is at $76 per barrel. What really will hit hard is the cascading effect of diesel prices on essential commodities and food prices on common man. Very soon the prices of vegetables and other commodities are likely to see a spike, it will come unfortunately during the winter season when fruits and vegetables are suppose to be cheap observe economists.

Why Modi government has adopted an approach to aligning with international crude prices has its reasons in the poor performance of the Indian economy. During the UPA regime taxes on oil were rationalised when world oil prices reached $100. This was because revenues for the government were coming from robust performance of industry, construction sector etc. But the grim reality since 2014 is that industry is growing at a snail pace, construction and real estate growth is nearly flat. Modi government may boast of increase in one of industrial and agriculture growth between April-June 2019 but July and August have again seen flat industrial growth and the agriculture produce from the rainy season is yet to reach the market. Given the slow growth and bleak prospects in the past four years of his governance PM Modi has to rely on income from petrol/diesel which compensates for low growth of the economy.

The petrol consumption in India was 14,192 mn metric tonnes in 2011, increased to 23,000 mn metric tonnes in 2017. Diesel consumption was at 60,080 mn metric tonnes in 2011 but has remained contained to 76,015 mn metric tonnes in 2017. A slow growth in consumption for an economy which is trying to outcompete the economies on China, Britain and France. (As boasted by FM Arun Jaitely that India will race ahead of China etc). Going ahead, internationally the big investors are betting on oil at $100 a barrel by the end or early next year as they think that Saudi Arabia is selling its oil cheap. With the US economy picking up the demand for oil will also rise taking the oil to over $100 level say oil expert. This for India could mean that domestic prices for petrol will reach Rs 100/ liter (from Rs 88/liter) and cooking gas at Rs 1000 per cylinder from the current Rs 800 level. It is the common man who bears the brunt of oil on the boil. Welcome to an election year with high prices and low growth.

(By Bhagyashree Pande, views expressed are personal)

Please Share this Post if you like !

Leave a Reply

Your email address will not be published. Required fields are marked *