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Fuel prices in India – Demystified!

In Opinion on May 17, 2011 by shsmani Tagged: , , , , , , , , , , , , , ,

Petrol costs more than what Aviation fuel costs, thereby putting it right up there in the most valuable commodities. If this keeps going up like this, the so called “Middle Class” families will soon be families below the poverty line. Agreed that the price of oil is rising at the international market, however still why is this disparity between the prices of Petrol and Diesel and more so between and India and other non Oil producing nations?

Reports suggests that the actual cost of importing, refining and distributing petrol works out to approx Rs.36 per litre. If that is the case where is the remaining cost coming from. Are they profits? no… they are excise duties and levies imposed by the government. These work out to about Rs.30 per litre of petrol. In contrast, while Diesel costs a little higher in the international market, it is sold cheaper in India, courtesy lesser levies and

petrol-price-hike

taxes. It is suggested that the levies on Diesel is about Rs.10-Rs.15 per litre.

Why Diesel is getting this Partiality? Some people say it is because of the fact that Diesel is used in farm lands and that is a vote garnering measure. Also, that Petrol is the rich people’s fuel. While all of this was true in the 80’s and 90’s things have changed dramatically at the turn of the millennium. Diesel guzzling SUV’s are the rich men’s favourites and two wheelers and compact cars running petrol is the Middle class families friend. Even official data supports this fact by reporting that Diesel consumed in the country is 5 times more than Petrol. So a simple Rs.2 increase in diesel in enough to negate a Rs.10 decrease in Petrol. It is time the policy makers get realistic and give petrol its due.

Another funny thing the government does with fuel prices is that, it levies a custom duty on crude oil and then subsidizes the prices of refined products like LPG, diesel and kerosene. Why levy a custom duty in the first from the oil companies and then follow it with a subsidy? It only leads to financial pressure on the oil companies who have to first pay the duty and wait for the subsidy. Collecting money from the government is monumental task, and for the period in-between unwanted interest rates are paid, there by affecting the bottom lines of the already sunk oil companies. After all, oil companies are not privately held, so who is actually losing the money? I think the answer is very clear to every taxpayer in the country.

So what can the government do? The simplest of free crude oil imports from duties and the retail sales of petrol and diesel from all forms of taxes and levies. After all, who is the government fooling by adding a custom duty to show income to the government and then giving out a subsidy and billing it as an expense.

Or Alternatively, they could sell ads for every liter of petrol so that at the petrol pump, so that we get to see ads like “this liter of petrol brought to you by blah blah blah” – zoo zoo can show its super power by offering free petrol in its super weeks..and Abhishek Bachchan can suggest using aviation fuel instead of regular gasoline and claim ‘what an idea sir ji’!!!

Do share your thoughts in the comments below.

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