According to the stats of International Energy Agency (IEA), India stood third in the world with respect of oil consumption in the year 2015. This report has shown that India has been consuming 4,690,000 BBL/day in the year 2017. Though, it holds the third position, the oil consumption is much less as compared to the top two countries.
China is holding the second position with daily consumption of 13,226,000 BBL, is very high as compared to India. According to the Petroleum Planning and Analysis Cell (PACC), India’s consumption of petrol has been reported at 28,282 thousand metric tonnes (TMY) for the fiscal year 2018-2019.
Hike in price of petroleum products in India has been a boiling issue since two decades. People are very reactive to the rising prices of petrol and its products. The hike in the prices of petroleum products is basically because of the change in the average price of crude oil and foreign exchange rates. The fortnight increase in the prices of petrol fuels the consumers.
Hike in Price of Petrol
The generation will be shocked by the historical prices of petrol. In 1990, the petrol was available to the consumers at Rs. 9.84. If we compare the historical and the present prices, the consumer will notice that the price has increased 9 times. The price in the four metropolitan cities is such, in Mumbai the price of petrol is 91.34 per litre, the Delhi get the same petrol at a price of Rs. 84 per litre, in Chennai it is Rs. 87.33 per litre and in Kolkata it is Rs. 85.5 per litre.
Petrol price in Delhi have increased by 112% during decade of Congress rule. In may 2004, when the UPA Government came into power the price of petrol was Rs. 33.71 per litre in the capital. In contrary to this, when the tenure of government ended in 2009, there was an increase of 20.5% as the petrol prices were Rs. 40.62 per litre. In 2014, when the second tenure of UPA ended, the prices of petrol in the national capital were Rs. 71.41 per litre.
Therefore, with this date a hike of 75.8% over five years and an aggregate of 112% were calculated. When the Congress ceded the power the NDA Government came up with the majority. Since 2014 to 2018 when the NDA government was in power, an increase of 13% in the price of petrol was seen. The price of petrol in 2018 was 80.73 per litre. Therefore, we can notice that the rate of increase in the UPA government was much more than that noticed in the tenure of BJP.
The consumer encountered the highest ever rate of petrol in the month of October 2018. At that period the Indian rupees was not faring well and the international crude producers, even the OPEC had cut down the supplies creating an artificial demand. On 4th October, 2018, the petrol rates were the highest of all time. The consumers even experienced fluctuations in the price of petrol in the month of October.
Causes of Price Hike
Primarily, there two causes by which the prices of petrol in India has encountered a great hike. The first one is the price of the crude oil which are decided by the global suppliers of the oil and the second one is the rate of taxes and the level of taxes imposed on the petrol. In 2013, under the UPA government, the price of petrol escalated to Rs. 76 per litre.
At that time, the price of the crude oil by the global suppliers was higher than what they are offering today and the government managed the price by imposing fewer rates of taxes on the petrol. The increase of price which are encountered today are thus a result of higher rates of taxes impose by the government.
Therefore, the opposition also accuses the government for inflicting higher rates of taxes of the people for the purpose of filling their treasury. Therefore, both the internal and the external factors are responsible for the hike in petrol prices.
Taxes on Petrol
Tax is an income for the government; this amount is in turn spent on the development of the citizen. Petrol and other fuels also come under the ambit of the taxation system of the country. The taxes levied by the centre and the state governments have a significant role in raising the overall retail fuel prices. A consumer pays a Fuel duty along with the petrol, diesel and other fuels.
A consumer also pays value added tax amounting to 20% on most fuels or the reduced rate of 5% on domestic heating fuel. The rate a consumer pay also depends upon the type of fuel. For Petrol, diesel, Biodiesel and Bioethanol, the rate of taxation is 57.95 pence per litre.
The higher rates of tax imposed by the government are burning the pockets of the consumers. At present petrol is taxed at a rate which is slightly higher than 100%. In 2013 the rate of taxation was 66.48% which has increased to a rate slightly more than 100% today. But according to the data available, the price of petrol was maintained much efficiently by the Modi government.
The era of steep rise in the price of fuel as seen at the time of Congress rule came to a little relief. But it important to understand that though the price were increasing at a minimum rate, heavy excise duties were charged. Today the price of crude oil is lesser than that encountered under the Congress, but the present government is charging high rates of duties for petrol.
Going through the estimates of the finance ministry’s revenue collection, the government today is expecting more than Rs. 2.579 lakh crore by imposing taxes on petroleum products at the end of the fiscal year. This collection is much higher than the collection in fiscal year 2013/14, which was 2.016 lakh crore.
Excise duty on petrol in November 2014 was Rs. 9.20 per Litre. In August it was Rs. 21.48 per Litre which is almost three times more than what was charged previously. The year 2019 came up with relief in the excise duty charged on petrol as it is now charged at Rs. 17.98 per Litre. Vat on basic petrol was 20% on basic price which has now risen to 27% on the basic price.
Petroleum Products if covered under GST
GST is a simplified tax regime which was imposed by the country after the 101st amendment. This is a single tax which subsumed all the other taxes such as the services tax, excise duties, etc. But, at the time when the GST Act was codified, petrol along with other few items was kept out of the purview this act.
Today, many economists and other scholar are in favour of imposing GST on petrol. This is because the highest rate of tax under the GST is 28% which is lower than the rates imposed on the petroleum products under the traditional taxation system. The retail price of petrol will encounter a downfall after petrol is added under the ambit of GST.
Effects of Price Hike
Petrol is an inseparable part of all the activities. It is used by many major sectors including the auto, transportation, FMCC, etc, for both manufacturing and transportation. The machinery uses petrol for manufacturing, these manufactured products needs to be transported to reach the final consumer. A hike in prices of petrol will affect the price of manufacturing and transportation as well, inflicting burden on the consumers. Rate of inflation will increase and the banking sector will be affected by this.
Transport is an immense part of today. The distance between residence and work place are increasing. Both poor and the rich needs to travel a great distance and increase in the price of petrol will increase their spending on transportation. Roadways, railways and the airways will increase their charges when the price of petrol goes up. Salary of the middle class families remain fixed but their expenses on travelling increases.
This makes it difficult for them to maintain themselves in limited resources. Such an increase will not affect the rich and the corrupt but the poor and the middle class will suffer.
Food is a basic amenity for living. With a rise in the price of petrol, the price of food also reaches the sky. The poor are left helpless as they are left in a bottomless swam of expenses from where there is no rescue.
The living standards which a person want to achieve could never be achieved as he has to pay all the increasing expenses with his limited income. The poor are in pathetic condition. They work to fill their belly and nothing more.
A few more implications of price hike are the rise of cost push inflation, the oil importers will see bigger current deficit, the firms will cut off their investments in the production process, and the most important that the economic growth of the country will slowdown and the value of rupees in comparison with the Dollar becomes weaker in the international market.
Petrol is an indispensable part of day to day life as it occupies a place in many activities. The effect of the rising prices will be on the poor and the middle class as the rich will not bother the rising trends in the petrol.
The rise in the price of the petrol is due to both the rates offered by the global suppliers and the taxation of the country. The government cannot be blamed entirely for rising prices. The citizen should also be aware and use the fuel in a justified manner.