Even as the people struggle with the COVID-19 pandemic and the subsequent economic hardships, the Union government is adding to the burden by increasing oil prices. The Union government has pushed the people to the edge with its decisions. A steady increase of petrol and diesel prices has made life intolerable for the common man.
The government has further complicated the family budgets already strained by loss of livelihoods.
The irony
The frequent increase in oil prices in India is in stark contrast to the near-stability in the international market. A barrel of oil cost around $150 in 2008. Today it stands near $40 per barrel.
Indians have been struggling to keep themselves above the water ever since oil marketing companies were allowed to fix prices in accordance with the volatility in the international market. In 2008, petrol cost Rs 50 per litre and diesel Rs 35 per litre in India. The price has increased in the national market more than 50 per cent even as international prices slid more than 75 per cent.
Disparities in price fixing
Prices of diesel and petrol are determined on the basis of international crude oil prices. Oil marketing companies rely on an assumption that import is 80 per cent and export is 20 per cent to arrive at an average price. This is known as trade parity price determination.
Exchange rate of the rupee is another factor that weighs in on price determination. Experts think that this is not a scientific method to determine prices. We do not have to rely on international prices because we refine crude domestically. Moreover, our refining cost is comparatively lower.
The price thus arrived is added with entry tax, refinery charges and transport cost. Then the taxes imposed by the central government and the state government as well as the dealer commission are added to fix the final price of petrol and diesel. That is what we pay.
Tax is more than 100 per cent of the basic price. This is nothing but daylight robbery. While the Union government eagerly practices it, the state governments reap its benefit too.
Burden on common man
Fuel price has increased by more than Rs 8 in just two weeks. That is more than a 10 per cent increase in the prices of diesel and petrol. Naturally, family budgets will go for a toss. A person who depends on his two-wheeler to go to work will see a corresponding spike in his cost of living. Someone who uses 15 litres to 20 litres of fuel per month will have to spend Rs 120 to Rs 160 additionally on transport cost. Higher consumption will lead to an additional burden.
Here is a table to illustrate the point:
Extra burden on the common man
Vehicle Petrol/diesel usage (per month) Extra cost (Rs)
Two-wheeler 15-20 litres Rs 120-160
Two-wheeler 20-30 litres Rs 160-240
Four-wheeler 25-40 litres Rs 200-320
Four-wheeler 40-60 litres Rs 320-480
There may be fluctuations in the extra burden in fuel cost depending on the requirement of different people having to travel different distances. You can calculate your own additional burden by tweaking the figures given in the table.
Hitherto we discussed the direct impact from a rise of fuel prices. Indirect consequences are far too many. Most of the products will become costlier with every increase in fuel prices. The overall price rise that follows an increase in fuel prices will burn a hole in the pocket.
Transport cost and the cost of raw materials will go up. Farmers will see their production cost shoot up and net profit slide. Manufacturers are also faced with similar consequences. An increase in fuel prices at the national level serves no purpose other than fattening the government coffers. It hampers every other activity. It is a widely recognised fact that increased fuel prices will hinder economic growth. An economic slowdown will make a dent on people’s earnings. They will find it hard to make both ends meet.
At a time when people’s earnings are diminished due to the COVID-19 pandemic, the government should have explored means to stimulate their consumption. What we see in the country is just the opposite. The common man found no place in the package of Rs 20 lakh crore. What follows now is just a logical progression.
