PETROL AND DIESEL PRICES ARE CONTINUING TO RISE IN INDIA

PETROL AND DIESEL PRICES ARE CONTINUING TO RISE IN INDIA

Subject : Economy

Context : Petrol has crossed the Rs 100 mark in at least six states as a result of a Rs 4.9 per litre hike in its price since the beginning of May.

Concept :

Fuel price dynamics in India

• Retail petrol and diesel prices are in theory decontrolled — or linked to global crude oil prices.
• It means that if crude prices fall retails prices should come down too, and vice versa.
• But this does not happen in practice, largely because oil price decontrol is a one-way street in India.
• When global crude oil prices fall and prices slide, the government slaps fresh taxes and levies to ensure that it rakes in extra revenues.
• The consumer should have ideally benefited by way of lower pump prices, is forced to either shell out what she’s already paying or spend even more for every litre of fuel.
• The main beneficiary in this subversion of price decontrol is the government.

Why crude oil prices are rising now?

• The price of crude oil has risen sharply in 2021 on the back of a recovery in global demand as the world economy recovers from the Covid-19 pandemic.
• The price of Brent crude has risen by 37.1 per cent to about $71 per barrel from about $51.8 per barrel at the beginning of the year.
• The price of petrol and diesel are pegged to a 15-day rolling average of the international prices of the petrol and diesel.
• However, current petrol prices are significantly higher than prices in FY14 when the average price of India’s crude basket was $105.5 per barrel.

What is the impact of taxes?

• Increasing central and state taxes on petrol and diesel are the key reason for the prices of petrol and diesel being at record highs, even though the price of crude oil is only 3.5 per cent higher than at the beginning of 2020, before the Covid-19 pandemic led to a sharp fall in the demand for crude oil.