The hike in fuel prices has hit the headlines this week. Petrol prices have touched nearly Rs. 90 across major cities and are about to reach Rs.100 soon. Most of us are wondering why are these prices on the rise?
Why the hike in fuel prices?
In early 2020, the price of Brent Crude crashed from $66 per barrel to $19 because of the pandemic in various countries. The pandemic led to a lower crude and fuel demand. This record low needed to recover, and hence, the crude prices reached $55.37 in January.
This pandemic took a toll on our economy, and state governments had to increase duties to boost revenue. The taxes contribute to nearly 62% of the prices on petrol and 57% on diesel. So, a combination of high taxes and the rising of crude oil prices have hiked the petrol and diesel prices in India.
The Indian government raised the excise duty when crude prices were down in March last year. The excise duty on petrol was also recently raised from Rs. 2.3 per litre and Rs. 3 per litre for diesel. This increase in excise adds Rs 14,500 crore to the government.
The extremely high taxes levied on fuel, and international crude oil rates are the reasons behind the price hike. Global crude oil prices have increased after the Organisation of Petroleum Exporting Countries (OPEC) continued supply curbs. This curb was impacted India, where now, citizens have been paying high rates compared to the neighbouring countries.
After the ease of lockdown, crude oil prices were at a low at Rs 25 a litre, but this is surprising; consumers are paying Rs 87.75, which is three times higher. Tax collection was on a halt in every sector except fuel during the pandemic.
The government is considering cutting excise duty, and the ministry of petroleum and natural gas has suggested the finance ministry look over it. The last time the fuel prices were on a high was in October 2018. That was when crude oil prices touched $80 a barrel, which was very high and scary.
Political jabs due to fuel price hike
Indians pay the highest taxes on fuel in the world. India follows a system for altering fuel rates, oil marketing companies, so the government has no control over it. They impose a tax based on the base price of the fuel. Before India can be completely ‘Aatmanirbhar,’ the issue of fuel prices needs to be addressed with a concrete solution.
The government has found itself in a confusion. PM Modi has blamed the previous governments for the price hike. He stated that they needed to take steps to make India self-sufficient so we wouldn’t have to depend on imports. Although, even if there are changes with the crude oil price, we are still going to be affected because of the excise tax levied by the central and state government.
Fuel prices affecting ‘Aam Aadmi’
The recent hike has taken a toll on our wallets, and the monthly budget is taking a hit. Some might even consider cutting their average monthly fuel consumption because the prices are increasing. The impact of the fuel prices is mainly on the automotive sector, which is a source of employment in the country.
Even vehicle sales have seen a huge drop, especially after the lockdown. And the numbers are most likely going to see a major dip if the fuel prices continue to increase. The low demand has even led to job losses in the auto and ancillary sectors. People who don’t have personal vehicles will have to face the challenge of paying more if they use public transport
Companies that deal with logistics and transportation of goods will also see a hike in their service rates. According to an Economics Times report, they seek to increase 10-15% in freight costs. Not only this, the food we order now will get costlier. From ordering vegetables or fruits, everything is expected to see a rise in prices. If the fuel prices remain elevated, this will lead to inflation, which could delay a recovery in the economy.
The fuel price will limit people on spending much on travel, especially on a road-trip. Daily commute prices are also about to blow up; so better start saving up.