Why are gasoline prices rising?

In many parts of Rajasthan and Madhya Pradesh the price has exceeded 100 rupees / liter. In many other cities it is close to the 90 rupee / liter range. Why do fuel prices change so frequently? Why are the prices of gasoline and diesel increasing every day in our country? To what extent does the world price of crude oil have an impact on the domestic price of oil? Come on, let’s understand in depth.

Price deregulation

At present, the government of our country uses the dynamic pricing system to decide the price of gasoline and diesel. The prices of wat crude oil fluctuate in the world market in the same way, the price of oil fluctuates in the country. So you can say it is deregulated. This that the government does not directly control the price of gasoline. Rather, the world market controls what the price of gasoline should be. As you read this, a lot of questions will come to your mind. I will answer these questions slowly. But historically, this has not always been the case. Many years ago, the price of diesel in our country was regulated by the government. This that the government used to decide the final price at which gasoline and diesel were to be sold. But many problems arose because of it. There was a lot of pressure on the government to sell gasoline at a lower price. It shouldn’t be sold at such a high price, so much tax should be imposed and it shouldn’t be done. For this reason, in 2010, the government of Mr. Manmohan Singh deregulated the price of gasoline and in 2014, the Modi government regulated the price of gasoline. The system was such that the price of gasoline and diesel changed on the 1st and 16th of each month depending on the world market. That is, the price remained constant for about 15 days. But on June 16, 2017, the government introduced a new system and said that instead of revising the price every two weeks, we will revise it every day. Every day, the price of gasoline and diesel would be revised at 6 a.m., which is still relevant today. For this very reason, you hear every day that gasoline prices go up by one rupee or 50 paisa.

There were basically two reasons for doing this. First of all, whatever small change that takes place in global crude oil will have an impact on consumers and dealers, whether it’s profit or loss. The second being that 15 days was quite a long time. People started to speculate that world crude oil prices have gone up and down, so after 15 days the government might raise the price of gasoline, so before that we should have the fillings filled. tank trucks of our vehicles. So to stop this speculation and panic, the government has decided to revise the price every day.

As you already know, crude oil is the raw material of gasoline and diesel. And in India, about 84% of petroleum products are imported. Global crude prices have been rising in recent weeks. For this reason, prices in India are also increasing.

Why are consumers not benefiting from it?

You might ask me a question here, if the price of gasoline depends on the price of crude oil, then when crude oil prices fell in negative, why didn’t the price of gasoline go down for us? If you ask me this question, that’s a very good question. Because in reality the government keeps saying that everything is deregulated and everything depends on world crude oil prices. But in reality, the government controls these prices through taxation. When crude oil prices turned negative, the government increased its taxes. Recently, the government increased the central excise tax by 13 rupees / liter and 16 rupees / liter respectively on gasoline and diesel. Even many states have also increased VAT (value added tax) on them. It is therefore a type of unilateral government regulation. When crude oil prices go up, gasoline prices go up and you pay more. When crude oil prices go down, the government raises their taxes and gasoline prices go up again for you and you always pay more.

Distribution of taxes

From the image above, on February 16, you were paying Rs 89.29 / liter. Now the base price is around 31 rupees / liter. The central government tax on excise duty is even higher than the base price of 32 rupees / liter. The tax imposed by the state government is around 20 rupees / liter. After that, if you include the freight cost and the dealer’s commission, the price would reach Rs 89.29. This that 60% of the price you pay simply goes into taxes, either to the central government or to the state government. In many areas of many cities, this price has exceeded 100 rupees / liter because state governments charge more taxes.

Comparison with other countries

If you compare the price of gasoline with the rest of the world, you will know how expensive they are in India.

The price of gasoline in Pakistan is 65.2 / liter. In Sri Lanka it is 69 / liter. In Nepal, it is almost 70 rupees / liter. The situation is so bad that people in the regions of Bihar bordering Nepal are smuggling oil. They bring gasoline from Nepal to India because they are still saving 20 rupees / liter. But it is not even the case that India is the country where gasoline is the most expensive. There are many other countries where gasoline is much more expensive such as Japan where it is 94 rupees / liter.

In Germany, an individual earns on average 2-3 lakh per month. And in India, an ordinary person earns 20,000 to 30,000 rupees per month. In Germany, people have an average income 10 times that of India, so people have that kind of purchasing power as well.

Why are gasoline prices rising?

The answer to this question is quite simple. Basic economics says that every time the for something goes up or the supply goes down, its price goes up. When goes down and supply goes up, the price goes down. This is valid for everything. The same is happening with oil. When the lockdown was imposed around the world because of Covid-19, for oil declined because planes weren’t flying and vehicles weren’t on the roads. Because the fell and the supply remained the same, the price fell in negative. Now that more people are getting vaccinated and the lockdown is ending, the economy is back on track, demand is increasing. Many oil-producing countries have such a well-known group as OPEC that also controls things on the supply side.

This content is accurate and faithful to the best of the author’s knowledge and is not intended to be a substitute for formal and individualized advice from a qualified professional.

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