Why do we see petrol prices hiking daily in India?

Source: Mint Live

The price of diesel and petrol has been rising at unprecedented levels, ever since the introduction of dynamic daily pricing model for these fuels. This has triggered a chain or uproarious reactions from various quarters of the nation, who are claiming that the price rise is antithetical to the slump in crude oil prices in the international market. The government’s move is being widely protested and debated across India. At the time of NDA government’s inception, crude oil prices were as high as $108 per barrel and owing to a multitude of pulling factors; Brent Crude is currently $54.2 per barrel. This gap generates immense revenue gain to the government that hasn’t been passed to the consumers.

As the plummeting of the cost of crude oil began, the NDA government took to hiking of excise duties. This way the Centre has accumulated higher revenue since then. It’s a common misconception that the price of fuel is determined by just the movement of the raw material. In fact, other factors that affect it are currency exchange rate and demand-supply scenario in the market. The government of India justified the hikes by mentioning that the additional funds are being used for socio-economic welfare activities of infrastructure and civic amenities, as well as fiscal planning.

It’s a fact that hike in excise duty on petrol has been to the tune of 133 percent for petrol and 400 percent for diesel in the last three years. However, the government has again come up with elaborate and explicit explanations for their move of the introduction of dynamic pricing. This basically translates to the fact that diesel and petrol are now subject to daily price revisions effect from June 16, 2017. Prices are rising at the rate of 2 paise to 7 paise every day. It has contributed to the hike in Wholesale Inflation.

The government’s fact checker states that the Retail Selling Price (RSP) of petrol and diesel is linked to international product price, which has recently increased owing to Hurricane Havey and Irma in the United States. The Free On-Board prices of both petrol and diesel have increased in the international market. Furthermore, the international crude oil prices have increased by 13%. Ever since GST has been introduced, several state governments have increased VAT on fuel drastically. Moreover, the government claims that additional revenue is being transferred to the state governments for development purposes, and thus criticism of their present policy is unfair and unwarranted. The Union Minister has nevertheless, urged the GST council to bring fuel under its ambit in order to facilitate decrease of prices.

The Congress Party has already upped the ante against the government through their attempts to mobilize the public who are clearly disinterested in the mathematics of international markets and care only about the dents created in their pockets. With general elections only two years away, it would be interesting to see the government justify their work in a more persuasive manner.

Article by Mausam

Why do we see petrol prices hiking daily in India?


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