High Fuel Prices in India: Why in News?
The fuel prices are continuously on a hike and there has been no indication of reduction of prices by the Government till now. The Union Government is not ready to cut the taxes on fuel at all. Chennai is soon to become the second metropolitan city where fuel prices would cross the 100 rupees mark.
To know about the prices, let us study the breakdown of the petrol / diesel prices in the country.
Petrol/ Diesel Pricing in India
The major things where petrol prices depend on are:
- Cost of refined crude oil- includes refinery processing + refinery margins + OMC Margin + Freight cost + Logistics
- Price to dealer, dealer's commission and Excise Duty (Central Govt), VAT (State Govt)
- Price paid by customer
The prices of fuel are governed by the International market. WTI Crude comes from USA while Brent Crude oil comes from Europe's North Sea. OPEC Basket comes from middle Eastern countries and Africa.
Oil Prices at present:
- WTI Crude: $73.75
- Brent Crude: $ 75.11
- OPEC Basket: $ 71.56
The barrel is around 158 to 159 litres. Thus Indian Government spends approximately 5300 Rupees to get 1 barrel of crude oil.
Freight charges are to be added to this price. It depends on the distance of the exporter. Even if the prices of the crude oil is low, the end consumer does not get any benefit.
One must understand that even if the International prices are low, the Government does not reduce the regular petrol/diesel prices in India as the fluctuations are too high on an international level. The falling prices of the crude fuel are not met with falling petrol prices in the country as the extra amount earned by the Government is used to balance the fiscal deficit created in the market.
The difference between revenue and expenditure of the government is called fiscal deficit. These two together cover the prices of the petrol. The average tax paid by the users is almost 150% on the price paid by the dealers.
Take a loo at the table below to understand the prices more:
| Unit | Price per litre in Rs |
| Cost of refined crude oil | 32.39 |
| Refinery costs + freight etc | 3.6 |
| Price to dealer | 35.99 |
| Dealers commission | 3.79 |
| Excise Duty | 32.9 |
| VAT | 21.81 |
| Price paid by consumer | 94.49 |
Why is the fuel price not decreased despite lower international rates?
The Central Government needs more money for various tasks so it charges more taxes than the state government.
Any increase in fuel prices hits the middle class. But any kind of national debt is later socialised among the public generally. This means that the losses are distributed among the public, while the profits are privatised. If any country's expenditure increases, the Government debt increases which accumulates over years. And if the national debt is not taken care of without any economic growth, the inflation increases.
In case the price of domestic fuel is low , fiscal and current account deficit decreases. The Government not reducing the prices even after the international market decreases indicates that it needs money in a quick way and governments domestic economic activity increases which causes the national economy to improve while the Government meets its fiscal deficit targets.
People also believe that petrol prices increase when the political parties need more money to sponsor elections. This is however not a completely reliable and valid reason, but cannot be denied based on past events. Thus the Government uses fuel prices to manage the economy of the country at large.
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