Why are Petrol Prices Rising In India ? What Are It’s After Effects ?

Petrol Prices

Petrol and diesel are the most crucial non renewable. They are important due to their heavy usage in the transportation segment and Energy Generation segment. Right now the pricing of these commodities is getting at its peak. Recently recorded figures display that petrol prices have crossed the 100 Rs. Milestone. Hence 100 Rs. price per litre for petrol is applicable at many locations in India. The cities with this milestone lie in Rajasthan and Madhya Pradesh. The diesel prices at such places has touched 92 Rs. approximately.

If we look carefully the prices of petrol have increased continuously in the Feb month. Every day has witnessed a hike of min 0.5 to 1 Re. When asked by the government regarding such a robust price rise they pointed to the opposition for the same. In their opinion the previous ruling party is responsible for such a price rise. The reason is they made India an importer of crude oil. India imports 85% of its crude from OPEC, USA and Russia. It also holds the third position in the list of maximum imports of Crude oil in the world. With such higher volumes of imports it is inevitable for the government to control such a price hike in short span. The taxes are stable but the currency dips and Crude oil changes are the reasons indicated by the Ruling party for such a robust price rise.

Biased Pricing For Petrol and Crude Oil

In India the major concern is regarding the pricing structure that the government has adopted for these commodities. The century in pricing for petrol and hike in prices for diesel has come at a very strange time. Right now the prices of crude oil per barrel has decreased yet the prices for fuels have kept increasing in India. If we see historically as well the pricing of petrol never decreases with decreases in prices of Crude oil. Lets understand an example regarding the same:

In Jan 2020 the prices of Crude Oil was 65 $ per barrel. At that time the currency conversion was estimated to 71 Rs for 1 dollar. Hence the price per barrel is approximately Rs. 4615 per barrel. Also per barrel the quantity of Crude Oil comes to roughly 159 to 160 litres. Hence the raw oil or crude oil was available at 29 Rs. per litre in Jan 2020. And a surprising fact is that the price per litre for petrol at that point of time was 72 to 73 Rs. per litre.

Comparing the current crude oil prices in international markets, the rate per barrel is actually lower than Jan 2020. This comes to roughly 58$ per barrel. Also if we consider the hike in Currency pricing for USD INR, it comes to 73.46 Rs per dollar. This means that the price per barrel for crude oil is 4260 Rs. This means a price difference of 355 Rs. than Jan 2020. Also as per calculation per litre pricing would come close to Rs 26 per litre. Yet the price for petrol has gone up which is very surprising. This is a sign for biased price distribution on the part of the government.

Reason Behind The Price Hike

The main reason behind the price hike is not crude oil prices surging to new highs. The reason is the increase in taxes applied on petrol and diesel. Also imports are one of the reasons but on the same page there is a constant surge in fuel prices regardless of global crude oil price effects. So it is not entirely the fault of imports but the pricing system and taxes levied are heavily responsible for such a price hike.

Why Would Govt. Not Change The Petrol Prices ?

The government is increasing the taxes on important and essential goods. The reason is the deficit that has occurred due to COVID situation. The government is under high pressure due to negative growth rate and trade deficit. Also the net amount of exports have reduced which indicates that the economy suffered a high setback. Another fact is the government has not applied any tax hike on individuals in the Budget 2021. Hence this is a positive sign on the piece of paper. But with the current situation price hike in every commodity it is visible that there is an indirect hike in expenses for individuals. Hence the individuals have to pay more for getting similar quantity of goods. This is a clear case of indirectly earning more from the individuals.

Effects of Petrol Price Hike on Industries

The Industrial and business segments highly depended on transportation for movement of goods. For transportation the direct requirement available is fuel. With the fuel prices rising daily the cost of transportation has also increased which is a reason why the price of raw materials and finished goods have taken a hike.

Transportation industry is a necessity for every business activity. Due to the increase in fuel prices, the prices for every raw material and every finished goods transported would take a slight hike. Hence such a price hike in petrol and diesel is also indirectly responsible for increased pricing of other goods and services.

This price hike has come at such a time when the businesses of major segments have opened up and are taking a leap to get out from the COVID potholes. Industries like textiles, metals, plastic etc. always generate their major turnovers in the upcoming months. This means that the prices for their commodities will increase partially on a small scale because of this. Also in recent articles it is explained that prices for plastic have taken a major hike in the previous month. So the government has taken a smart and smooth step this time while designing the budget 2021. They have not increased the taxes levied on common man but have increased the pricing for essential commodities which would generate more income for the government at the end in form of GST.

It is also rumored that Amul is going to increase the price per bag of milk. It is assumed that the pricing would increase by roughly 3 to 5 Rs. This means that the milk available at 25 – 26 Rs. today will be available at 30 – 31 Rs. This again would increase the price of milk and products related to it. The reason assumed is the fuel prices only.

Also the amazing thing about the price hike is once the prices go up for commodities they never come down. For instance if the prices go up for Amul they would not come down though the prices for fuels come down at later stages.

Year End And Other Concerns

With the year ending it is time for the companies to adjust their balance sheet and maintain their stock. So the companies would opt for gathering more stock in hand to cover up their high profits so that they need to pay less tax to the government. So far the situation was normal for businesses but the February month has disrupted the calculation for every business. The price hikes in metals, fuels, plastic, cloth, food etc has caused the common man to shaft their priorities and settle down for lower standard of living. With the COVID situation getting worse it is expected that another Lockdown will come forth and in such a situation with price hikes the businesses are getting a hit on sales.

Indian markets are also very volatile as it witnessed a downfall of 3.5% on one single day (26th Feb). With all these factors and tax increase it is tough to say that Indian economy will increase further. In the short run definitely loads of income will be generated but in long run it is tough to maintain an Austin business and hence a huge wave of business fall back may be reaching us.

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