While there is a chaos of blames on different people, organizations, governments, and international factors no one seems to know the exact reason for the sudden surge in fuel prices.
What is the chain of events that took place due to which the consequence came out as an incredible hike in the prices of petrol, diesel, and other crude oil products?
All the answers are given below. Plus, you will find another good reason why you should look forward to owning an electric vehicle shortly.
What made Petrol and Diesel expensive?
A basic thing to know is that out of all three crude oil exporting organizations in the world, India relies on the OPEC and Brent Crude for all of its oil imports.
In March 2020, with the outbreak of the Wuhan Virus pandemic, the global economy was shut down and most businesses had a threat to their very existence.
For the first time, in the USA the price figures of oil went in negatives due to almost no demand for fuel.
Situations were better for Brent Crude and OPEC since they managed to maintain an all-time low of $16-$20 per barrel.
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| credit: Wikipedia.org |
During the lockdown, thousands of businesses were shut in India. As a result, the government had to face huge losses which were worth more than 5-10 lac crore rupees.
To avoid any kind of financial problems in the future, which would ultimately harshly affect us, the government hiked the taxes on petrol and diesel to balance out the deficit caused due to the pandemic.
For decades, the Indian government has always been trying to maintain a stable fuel price of 80-90 rupees per liter regardless of the constantly changing fuel price in the international market.
Taxes have been one of the most efficient and best methods to cover huge deficits or losses borne by the government due to unexpected circumstances.
From July 2020 onwards, various economies of the world began re-opening which as expected led to a surge in demand for oil primarily for logistics.
Since then, the petrol and diesel prices got doubled and nearly tripled just within a span of 6-8 months; a rare incident to witness.
Interesting to know, if the government tomorrow reduces just 3-4 rupees from the taxes on oil fuels, it has to bear losses worth crores of rupees for every single year.
Now, you may know why any government is reluctant to withdraw even minute tax amounts from oil.
Not only that, even if taxes are reduced on oil fuels, you will have to pay more in other sectors/categories of products or consumables since the taxes on that are increased.
All this is done ultimately to balance out the national deficit India is facing due to the sudden shutting down of businesses, and revenue-generating sources for the government. This model is common not only for crude oil but also for almost all businesses and imports.
How are crude oil prices set in India?
Here is an example of Petrol on how the prices for different crude oil fuels are set:
The oil price during the end of January 2021 was $54 per barrel. Each barrel is approximately 159 liters in capacity which equates to ₹24.7 per liter.
The refining cost is about 52 paise per liter of oil. The logistics roughly costs about ₹6 per liter. Hence the net price till here is ₹31.
For this, about ₹32 is added as a tax levied by the central government on each liter of petrol.
The state government then adds an additional Value Added Tax (VAT) which usually is the same amount of tax when compared to that of the central government.
The dealer in between the process who is responsible for transporting the fuel from huge storage to the petrol pump gets a commission of ₹3-₹4 on every liter of petrol.
The total cost of petrol per liter then becomes approximately ₹90-₹95, almost the same as the common man is paying today.
As of 14th March 2021, the crude price has risen from $54 per barrel to $69 per barrel which clearly explains why petrol prices are crossing the ₹100 marks per liter.
What is the future for oil in transport vehicles?
Transport minister Nithin Gadkari said in his 'Go Electric' campaign that within the coming few decades if India relies on oil for transport as it does today, its net import of oil will rise from 7 lac crore rupees per annum to double i.e. 14 lac crore rupees per annum.
This is certainly not good news for the government as well as for you, since you are the one who will be paying double taxes to cover the expenditure.
Hence, it is strongly advised: The next time you buy a bike or a car, make sure it's electric.
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