Why India’s fuel prices are so high when oil isn’t?

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Fuel-Prices

With the price hike of the crude oil cutting to half its estimated price, the drivers all around the world are gleefully visiting the filling stations, but this isn’t the case in India. Here, the most consumed amenity, fuel, has its price soaring the sky, along with the gasoline prices accompanying it. India had decided to lift the control from the diesel prices, four years ago, preceding the freeing of the gasoline rates. Now, with the hailing of the government elections to be scheduled next year, following the various state elections, the government is immensely pressurized to cap up the hike in the fuel prices.

The huge reason for the government’s hold on the diesel’s price is due to its colossal pressure to bankroll the fuel. The fuel’s subsidy had been swelled up to $9.6 billion till the end of the year i.e 31st March 2014, which was later on followed by calling-off the diesel’s bankroll. The various State-piloted explorers like  Oil and Natural Gas Corp., Oil India Ltd. and state gas utility GAIL India Ltd. had been known to constantly shell out almost $10 billion for subsidizing the fuel,  by vending the crude and fuels to the state consigners at a discounted rate.

This had soiled the worsening of the matter when the government failed to fill the lag of the subsidy thus, meddling the balance-sheet of the state-fuel operators like Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp. The mess forced them to acquire heavily in order to suffice the yawning gap between the selling price and the cost.

The government, in order to compensate the chaos and by ignoring its revenues for once, might crash the fuel-prices to half the per liter price that the people presently cough out. Also, according to the Federal budget document, the government might gross up to 2.5 trillion rupees by the end of March 2019, by imposing the essential excise duty and also the additional taxes on its price. This accounts for almost 77% of what it had been five years ago.

The government has been slogging to fill its pecuniary gorge aim and any contraction in the taxes would end up expanding its revenue. This is the reason why reintroduction on the price control would be an easier path!

The country could redeem its state for bankrolling the fuel by requesting the titan companies to share the burden of subsidizing the fuel. For now, the government’s pricing categorization is bounded through a complex structure as they say it to be according to “trade parity price,” aka the predicted price of the fuel in case if it is exported or imported at the ratio of 80:20. Currently, the government has asked the state-run oil marketing companies to bear all the prices and not to worry the consumers.

It all happened, following the huge oil price crash of 2014, which slumped it’s price to a level, way below of that set by the Indian government. When the Indian government lifted its control from its price, it actually resulted in worsening the situation. However, it was the government again who enjoyed the benefit of the price plunge, by adding the taxes on to the oil rather than giving out the entire reduced price to the consumers. Now, with the taxes stuck to the same place, the real victims had become the consumers who were again troubled by the burgeoning price hike of the oil. Brent has reported hitting up to  $75 a barrel, on Tuesday, which has been rated as the highest since 27th November 2014.

Adding on to the mess, the Federal taxes have known to balloon up to five times since September 2014, to almost  17.33 rupees a liter, prior to a 2 rupees-a-liter decline in last October. This must have resulted in the slumping of the government’s finances to up to 260 billion rupees till the year-end i.e March 2014, yet the taxes held more due to the Gasoline’s price. The pre-tax Gasoline price in New Delhi was known to be 35.20 rupees a liter on 19th April, which was sold out for a whopping 74.10 rupees a liter following the addition of the taxes and dealer margins.

Diesel tabs for almost 40 percent of the products related to oil in India. Also, being the most essential source for transport, the surge in its price tends towards inflation as higher the price of the fuel, higher will be the price of shipment which in turn will make the price of the transported goods over-priced. Further, the most consumed fuel in the cars, gasoline, tends to notch-up the demographic as well. All the vehicles are swinging on the road due to the consumption of this mandatory fuel. 

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