We’ve been witnessing the rise in fuel prices in India from the last few months. Many of us hope for the prices to come down but you should know that probably this is not happening soon. Here is why:
Currently, fuel prices have upscale to more than Rs 100 per litre in many state capitals including Mumbai, Jaipur, and Bhopal. The price of fuelling your car in a month has jumped to 4% in the past one month.
Fuel prices vary from state to state depending on the various key parameters which includes local taxation (VAT) & Freight charges. If the prices remain high for a long time, this will be a bad indicator for our economy because this can make other things expensive.
There are 5 factors which decide the final price of retail fuel in India, diesel or petrol. These include the price of the key raw material, crude oil, the exchange rate for the US dollar against the rupee, the cost of refining, government taxes and the level of consumer demand.
Now let’s see the reasons behind the high possibilities of fuel price to stay high for at least this year:
High crude oil price this year:
After May 2019, last week, the price of Brent Crude went highest crossing the $71 per barrel mark. Besides, US’ leading investment bank Goldman Sachs expects Brent prices to touch $80 per barrel over the next six months before it will fall down. And according to experts, If the unrest in the Middle East escalates or if the new Iran nuclear deal further stalls supply, the price of crude oil could go up further.
US Dollar can inflate the prices:
India purchases more than half the amount of total crude oil from foreign countries and if the exchange rate goes up, then we have to pay more money to Indian rupees even if the overall price would fall in the international market. So higher the value of the dollar, the more price an importer has to pay.
Government’s toll on petrol will not come down steadily:
People should know that more than half the price of petrol is tax. Like if you’re paying Rs 100 for a petrol then around Rs 60 is going into central or state government pocket. Petrol and diesel are two of the highest taxed commodities in the country and they don’t come under GST ( Goods and services tax). Apparently, over the last 6 years under the Modi government administration, the prices have upscale over 300%.
Finance Minister Nirmala Sitharaman told news agency PTI that “the GST Council may consider adding fuel to the roster in March. However, that would imply a rate over 100% to keep the same returns. And, right now, the GST slabs are 5%, 12%, 18% and 28% — nowhere close to what the government can earn under the current system’” And after these effects of COVID-19 on the economy, it’s unlikely that the government would let go of such precious income from their hands so easily.
No hurdle from refining cost side:
Though India couldn’t produce enough crude oil to meet its need, it has a huge amount of refining capacity and even the government is planning to double it from the current 250 million tonnes a year in the next decade. Besides, the product manufactured from refining crude oil contributes magnificently to India’s exporter income.
Increase in demand once the economy will open up to full extent:
The Organisation of Petroleum Exporting Countries (OPEC) has agreed to open up the supply of oil, but demand is likely to rise gradually once economic activity gets restored. “We expect the biggest jump in oil demand ever, a 5.2 million barrels per day rise over the next six months,” said the bank in its report. Though India observed the low consumption of fuel during lockdown but it again took a high pace when the government provided laxity in the restrictions.
Drawing to the close, this could be a great opportunity for the people to focus on sustainable development and try to use bicycles or just simply walk to reach their destinations or wherever it is possible destinations or wherever it is possible.
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