Bishnu Mohan, posted on on 2nd Nov, 2017, 7 Views

fluctuating petrol prices in India: is Any Respite On the Way?

The fluctuating petrol prices have always been a concern of Indian public, who is currently not very happy with the sudden rise in petrol prices. Although the government is linking this sudden increase in fuel prices to the series of Hurricane in the US, Union Minister Dharmendra Pradhan calmed the public saying the prices will come down soon.

Answer ImageHe said, “Fuel prices have gone up recently due to the hurricane in the US. As the prices reduce in the international market, they will come down here also,” the petroleum and the natural gas minister told reporters in Ahmedabad. The rates have already started to come down in the last three days,” he said, adding that the petrol and diesel prices had been linked to the market since the last 20 years.

The matter:

All hell broke loose when there was a recent increase in the petrol and diesel prices. As the government has revised the petrol and diesel prices since 16 June this year, against the previous policy of revising prices every fortnight. Through this step of opting for daily pricing, India has also joined advanced countries like the United States and others who follow this practice.

The daily pricing policy is an effort by the government to deregulate the pricing of essential fuels. The government claims that through this policy the government will now allow oil marketing companies like Indian Oil, Bharat Petroleum Corporation, and others to price their products better, with respect to their fluctuating input costs.

As the oil companies are not required to wait a fortnight to change the prices, and it would allow them to quickly pass on the benefit of lower crude oil prices to retail customers. It will also reduce the risk of huge revision of prices.

Taxes to be blamed?

Taxes can be considered as one of the major culprits for stopping petrol and diesel prices from reflecting the decrease in international crude oil prices. Did you know, that almost half of the retail price that you pay while buying petrol and diesel goes towards paying the excise duty and the value added tax imposed on them?

Answer ImageAs a result, these taxes increase the price at which the oil companies can profitably sell essential fuel to people, limiting supply and keeping process high. As an answer to the opposition's criticism, Finance minister Arun Jaitley dared the states ruled by Congress and the CPI(M) to limit VAT on petroleum products and let go their share of the Centre's revenue from fuel taxes. He further said that 42% of the Central tax receipts from Petrol go to the States.

Government's Helplessness: 

Recently the government is paying more attention towards reviving the country's economy. As the center is all set to spend up to Rs,50,000 Crores to lock the 'economic slowdown'. It is also considering the additional measures to bolster the economy.

Talking about the matter Arun Jaitley said:

"You should remember that the government needs revenue to run. How will you build highways?" he said. "The government has increased public spending on infrastructure... Whatever GDP growth is there, it is fueled by public spending and FDI. If public spending is slashed, it will mean cutting down expenditure on social sector scheme"

Is the stressful economy the major culprit?

As we know the Gross Domestic Product Growth rate came down to a three-year-low of 5.7% in the April-June quarter. Wait for it, there's more to it. Recently Arun Jaitley confirmed that private investment has taken a hit. Seeing the present condition, the private sector investment has already collapsed and the economy is running on just one engine of public spending.

Answer ImageThere are many reasons that led to this stress in the economy, one of the reasons being demonetization. As in August, the RBI transferred only Rs 30,659 crores-which is less than even half the amount of Rs 65,876 crores it transferred to last year- as dividend stating lesser non-tax revenues for the year.

Another setback for the government was when the traders claimed Rs,65000 Crores as an input credit in lieu of the Goods and Services Tax(GST) returns filed by them for July. This amount is similar to 68.50% of the Rs,95,000 Crores which the government earned from the first filling of GST. To make things intense, the Current Account Deficit(CAD) has touched a four-year high of 2.4% of the GDP. CAD also states the trade deficit when a nation's import is higher than its exports.

How The Increase in Prices Affect India:

The ongoing increment in fuel prices can lead to inflationary effects, and could further prevent the central bank from reducing interest rates in October. A direct impact of such decision would be seen in India's trade balance too, which is currently skewed towards imports.

Now, while hearing about these benefits and everything feels good but frankly, it does nothing to soothe the already troubled public asking why are the fuel prices touching the sky and what is the government doing. Seems like the government's answers to public's questions is not at all satisfying for them. According to Energy expert Kirit Parikh:

"the revenues from high taxes on fuel should be used in social welfare schemes directed at education and healthcare, and to fund Research and Development." 

Conclusion:

Now, if the government's stance is to be believed, petrol and diesel are soon to be brought under the GST to minimize the tax burden. This, in turn, will help in bringing down the fuel prices, only if it is merged with better competition in the oil sector. Else, these lower taxes will barely improve the profits of oil companies without any of the benefits, be it lower crude oil prices or any other fall in input costs, being passed on to customers.

As per the current reports and government stance, it doesn't look like there will be a decline in Petrol prices anytime soon, but let's hope to see some decline after the affect of Hurricanes is reduced in the United States. For all the government's claims, we can only wait and watch where is all our money collected from fuel taxes used and how are we benefiting by paying huge prices on these fuels. Till then, let's wait and watch the development and progress works and claims done by the current government.

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