SRINAGAR — In India, Petrol and Diesel prices have risen by nearly 25% in the last one year. With most people thinking of supply shortage or crude price increase as the reason of hiked prices, the factor which directly impacted the prices is an increase in government taxes.
Last year around mid-February, petroleum was priced at Rs. 72/litre (approximately) in the capital city of New Delhi while in Mumbai, where the prices remain comparatively higher, it was sold at Rs. 78/litre. Today, the Petrol sells at Rs. 90/litre (approximately) while in Mumbai, you have to pay almost Rs. 96/litre. To be precise, the Petrol prices have gone up by 23% to 24% in this span of one year.
During the same period (Feb-2020 to Feb-2021), however, the prices of crude oil that is being bought by Indian refineries (Indian Crude Basket) have more or less remained constant. In fact, the prices have decreased, marginally (by 0.3 percent).
Ironically, people are paying more for every litre of Petrol at a time when they should be paying less, given the state of the economy wherein the earnings of residents have gone down amidst a potentially longer-than-expected phase of recession. Lakhs of people have also lost their jobs due to the Coronavirus-induced lockdown.
Crude oil, which can’t be used directly, is extracted from the earth and transported to refineries. At a refinery, it is converted into different kinds of fuel – Petrol, Diesel, Aviation Turbine Fuel, Kerosene, Liquified Petroleum Gas (LPG).
Interestingly, White Petroleum Jelly (Vaseline) and various other plastic products including paint, a plastic bottle, a laptop’s frame, rubber used in a car’s tyre or even the keyboard that is used to operate a computer have some amount of crude in it as these are a result of refining and chemical process from crude oil. Obviously, when prices of crude oil increase, these products would definitely have become more expensive.
Contrary to the popular belief that there is supply shortage for the country or the prices of crude oil have increased, the real reason for the steeply rising Petrol prices is the increase in taxes (levied by both the Central and the State governments) during the past one year.
So, why are we paying more? The simple reason is that in the COVID-19 lockdown period, both the Central and State/UT governments have increased the taxes being charged.
Earlier, the Centre used to charge Rs. 19/litre (approximately) as tax which has now been increased by Rs. 13/litre. Consequently, the tax burden has increased to Rs. 32/litre (approximately).
To make it simpler, we are paying 37% (Excise Duty) to Central government for every litre of Petrol, purchased from a Petrol Pump, say, in Delhi. Then add to that Value Added Tax (VAT) levied by the Delhi government, which charges another Rs. 20/litre (approximately). If we add the VAT of 23% to the Central taxes of 37% per litre of Petrol, we are paying over 60% of price for every litre of Petrol as taxes. This is huge, by any standards!
Pertinently, in a year when the economy has tanked, Excise Duty collection has actually gone up as we saw in the budget.
Meanwhile, the government says that they have no way to raise money, because things have changed. Big rebates have been given to Corporates on taxes, GST has gone down, people have lost jobs, income of employed ones has reduced, so increased taxes on Petroleum products is the only thing which can help out the government.
Another argument is that such a huge percentage of taxes on Petrol and Diesel is also charged by the governments in UK (63% approx.), Italy (65% approx.).
In UK, one litre of Petrol sells for INR 123 (approx.) while in Delhi, it sells for just Rs. 90 (approx.). In UK, prices are obviously more but Per Capita Income needs to be considered as well.
International Monetary Fund (IMF) projections for the year 2020 underlines that UK’s Per Capita Income is more than 39,000 dollars per year and in India, it is 1877 dollars. Also, simpler analysis through Purchasing Power Parity (PPP) (meaning how much $1 can buy in UK compared to what it purchase us in India), makes it amply clear that in India, people are paying whopping five times more when compared to UK as Per Capita Income through PPP terms in UK is about $44,300 (approx.) while in India, it is just $6,284 (approx.).
On the other hand, petroleum refineries are guaranteed a protected price by the government, even if the cost of producing petrol is lower in India.
In comparison to their income, Indians are paying more at a time when they should have been given a rebate, given the regressive impact of Coronavirus-induced lockdown on the Indian economy with lakhs of people losing their jobs.
The rising prices have triggered protests in some States while the opposition has continued to train guns at the government.
In response, Union Minister of Petroleum & Natural Gas, Dharmendra Pradhan on on Tuesday (February 23, 2021) hinted towards an eventual drop in the rates of the fuel. He cited an increase in prices of crude oil in international markets as the reason for rising consumer price for petrol and diesel. “Global supply was reduced due to Covid, in turn affecting production as well. This will soften gradually,” he told news agency ANI.
On June 29, 2020, the same minister had stated that the world economy as well as India’s economy was going through a challenging time, and the fuel prices in the country will go down once the international markets get stability. “Due to COVID-19 pandemic, energy industry was going through a tough time,” he had added.