The Riddle of Frequent Oil Price Hike

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Latest media reports suggest that the government is contemplating to increase over Rs 3-5/- per litre the market price of petrol and diesel after the end of monsoon session of parliament – together it constitute more than 75% of total petroleum consumption in the country.

It is very difficult, if not impossible for even experts tracking and analysing the pattern of changes in oil prices in retail market to say for sure as to when and how much the prices of petrol, diesel etc. will be hiked by the concerned authorities, as it is, what these oil company officials and the Govt. assert, market driven.

But as a common consumer, if we see the prices of not only petrol but also diesel and cooking gas in the market, we don't find the rational of either increasing the price or reducing the price in the name of varying crude oil prices in international market now and then.

It is interesting to know that India ranks among the top six largest oil-consuming countries in the world and is also one of the top ten largest crude oil importers – it imports about 80% of its total oil consumption. The importance of oil to our economy is immense owing to its significant forward integration with many other economic activities in different sectors. Obviously, the demand of oil has been increasing very fast.

Talking here specifically about India’s vehicular population, the reports say that it has increased many fold in recent past – presently, there are more than 40 million passenger vehicles alone to consume oil in a big way. In total, the country manufactures 11 million plus vehicles every year. And as domestic oil production is unlikely to keep pace with the demand, it is but natural to have a huge supply deficit. Now, to take care of the rising demand by ever increasing imports, the GDP growth and Current Account Deficit (CAD) would be very adversely impacted. This is one side of the story.

The other side goes like this. It's now a common knowledge that more than 40% of the ruling market price of petrol is due to central excise duty and sales tax of respective state governments. Due to fiscal mismanagement both at central and state level, no government talks of cutting its tax rate on petrol and hence find the most convenient route of passing the burden solely on the consumer. But one state is found to be an exception in this regard. Yes, the state of Goa slashed sales tax drastically in recent months; a few months ago, it cut nearly its entire tax on petrol, making the fuel cheaper by Rs. 11 per litre. If that be the case, why other states under the leadership of the so-called progressive Chief Ministers could neither follow Goa’s example nor embark on something even better?

We know that the foreign exchange outgo of the country is huge on account of oil import bill - a barrel of crude oil, which was costing us Rs 5,500 in April this year, now costs 27% more to over Rs 7,000 per barrel in August’13 – a whopping increase due to two major factors - 7% rise in international crude oil prices and 19% depreciation in value of the Indian currency against the US dollar (Rupee closes at all-time low of 66.24 vis-à-vis US Dollar on 27th Aug’13).

Notwithstanding these hard realities, the policy makers and power that-be are doing almost nothing worthwhile (except playing beautifully the infamous “Blame Game” to befool the countrymen) to reduce the growing dependence on import of crude oil by initiating many known measures in order to cut oil consumption in the country.

Even one simple initiative can make a big difference. Yes, the Centre and the States can very well stop use of official vehicles for personal purposes by all its officials forthwith. This will not only stop blatant misuse of official vehicle and thereby stop avoidable oil consumption to a great extent but also send a strong positive message across the country for judicious use of petrol and diesel for conveyance and transportation. There are many other measures which can be initiated to address this serious issue on priority.

 


milan sinhamilan sinhaMilan K. Sinha is a freelance writer. He has worked in Banking and Insurance sector for three decades following three years of active writing in various newspapers and magazines. Presently he is engaged in stress management, wellness and awareness activities besides freelance writing.
He is located in Patna and can be contacted at This email address is being protected from spambots. You need JavaScript enabled to view it..

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