Oil prices are low, but not for the consumers

One may remember how the petrol and diesel prices became a major issue in the 2014 Lok Sabha elections. And this issue played an important role in BJP winning them. Since then, international oil prices have come down, but rates at the petrol pumps have constantly grown over the years. So what’s going on here?

At the time when Narendra Modi was sworn in as the Prime Minister of India, the average price of Indian basket of crude oil was $106.85 per barrel. The petrol price in Delhi was around ₹47.12 per litre, while diesel was ₹44.98 per litre. Whereas, the average price of Indian basket of crude oil, in the month of September this year, was at $41.35 per barrel, while petrol and diesel prices are ₹81.06 and ₹70.46 respectively. In fact, international price were all time low in the month of April this year.

Source- https://www.ppac.gov.in/content/149_1_PricesPetroleum.aspx

India imports a large part of oil it consumes. When this oil crosses the border, an excise duty is levied on it. The excise duty in 2014 was around ₹10.39 per litre and ₹4.5 per litre on petrol and diesel respectively. The excise duty as of 1st October 2020 was ₹32.98 and ₹38.83 for the same. This is the reason why we are paying such a high price for it.

We can clearly see how the dealer’s price for petrol was ₹25.68 as of October 1, but after adding the excise duty, dealer’s commission (of ₹3), and the VAT (charged by the state govt.), the retail selling price reached close to ₹81.

As the tax revenue of the government fell, due to a disastrous demonetisation and a botched up GST, they started to raise the excise duty to cover it up. So, every time the international oil prices were down, the government took the advantage of it by raising the taxes, and when the prices rose, it just passed it on to the end consumers. As a result, we ended up paying 200% more than the dealer’s price on petrol.

Now the question arises, is government’s move to raise the duty on oil, especially during the lockdown, when they could earn almost nothing, justified? The answer is no. If the government would have passed on the benefit of low oil prices to us, then people would spent more, which in turn could have been beneficial for the economy. On the contrary, this money is now going to finance the debts of the government. Also, many other commodities are influenced by the oil prices. When oil prices are low, it cuts down the cost of transportation, and hence brings down the prices of everything we use, from furniture to vegetables and fruits.

Another question is whether this would have happened if there were no pandemic. Many experts say yes. As I told you how the tax collections were already low, this was bound to happen. The interesting thing is international oil prices went down just after the 2014 elections, but again the government interfered and raised the taxes, although not as much as this time around.

The conclusion is that raising taxes is never the solution to anything. We have seen what the “parasitic” state has done. It has hurt the consumers as well as the economy. We should start taking some hard steps to counter the slowdown and not hurt the consumers anymore. Let’s start by not blaming the God for it.

Courtesy - Econcentral Episode 3: Petrol, Diesel and Custodial Murder (embedded below)

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