The Magnitude of Rising Petrol Prices in India

As on September 21, 2018, if the petrol prices in the major cities across India are matched, Nanded stood first, with ₹ 91.4 per liter while Amravati, the new capital city of Andhra Pradesh, stood second in position with ₹91.04, and Jamshedpur with ₹81.15 stood in the last point. The point to ponder here is, the least is held at ₹81.15.

According to the easy to get to information, India is the world’s fourth leading consumer of energy. At one fell swoop, India is held at low per capita energy consumption. In 2017 alone, as many as 4 million vehicles were traded in India. An overall internal consumption of petrol and other petroleum product is on the upswing in India. It is just due to the increase in the number of vehicles on road — which is at a steep rise. As far as the growth in the sales of vehicles in India is concerned, there is a rise of 1.1% sales in 2017 as compared to 2016 (actual sale of vehicles in 2017 were 40,17,539).It is a matter of point that India is not having any fuel possessions — thus in order to fulfill the needs, the country has to perceptibly import. Also, it is an understandable factor that the demand for the import upsurges as the number of vehicles upturns. According to an assessment, if spending of the country as a whole is considered then 80-90% is finished to pay the import bills on petroleum products. This is nothing but the country’s expenditure.

In order to meet the growing demand for oil, India has to effusively depend on the petroleum imports. If we look into the problem intensely, the ultimate result in the price hike of petrol could be related to inflation. The price of petrol used to be stable in India for a longer time. However, with the deregulation of petrol in 2010, Oil Marketing Companies were allowed to increase the petrol price if any large variation in cost is observed by these companies. Oil marketing companies increase or decrease the prices by linking the domestic price of petrol to international market rates.Another governing factor is the condition of Indian currency, which is also not favorable at present. India is going through a currency crunch where the value of Indian Rupee is falling to US Dollar. As on date, 1 U.S. $ is equal to ₹72.32. This crunch results in more payments by the Oil Marketing Companies (OMCs) like Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL) for the same quantity of crude oil. Thus, disparaging Indian rupee is another major reason for the increase in petrol price in India.

Also, from the other end, the fiscal deficit of government is increasing. As it is obvious, the fiscal deficit is associated with the trade deficit. A trade deficit means more imports than exports. Importing of petroleum products accounts for a major share of imports by India. The payments for these imports are made in terms of US $. In this setting, there is no other option left with the governments than allowing the oil companies to increase the fuel prices. If the price of oil products is not increased, India will keep on facing this deficit. The price increase will decrease the demand which in turn needs fewer dollars for oil import. This process will sooner or later recover the fiscal deficit of the government and lead to economic growth.However, increasing the petroleum prices alone is the not the only solution. In India, 35% of government’s income is generated through taxes on petroleum products. If the tax rates are kept low, the price rise of petrol can be controlled. There are so many problems associated with the rise of petroleum prices — increase in prices may crack one problem but the same leads to many other problems such as poverty, inflating, the high cost of living, etc.

The ruling governments should realize the rippling effect of the rise in petrol prices. The prices of all the commodities will increase compliant with the rise in the petroleum products. Ultimately, the burden will be on the common man, who lives on the daily wages. Due to the hidden threats imposed by the rise in petroleum prices, the government needs to arrive at a perpetual policy, as the current-day state of affairs made every individual to spend 60% of his income alone on food items. This is the consequence of the rise in fuel prices.

–      Dr. Suman Kumar Kasturi