Spike in Petrol and Diesel prices and their effect on the Indian Economy

The rise in the price of essential commodities has always been a very sensitive issue as the onion price hike is still claimed as one of the reasons for the fall of the Atal Bihari Vajpayee regime and brought Congress back in power.

The recent rise in the prices of petrol and diesel has brought the same scenario back. And to the shock of the public, the most affected commodity this time is diesel, not petrol. For the first time in the history of independent India, the price of diesel has surpassed petrol.

On June 26, the price of diesel in Delhi crossed the mark of ₹ 80 per litre and this has been almost 20 days since the price rise started and oil companies have started increasing the price. Although the price of petrol and diesel are increased equally all over the country, the difference in taxes is what makes the prices different.

In 2011, the government allowed the oil companies to increase the price as they will, the prices of petrol and diesel skyrocketed soon. The middle class of India was the worst hit due to that and since then the petrol prices have fluctuated very much. But then the government had an excuse that international prices are rising, that’s why companies are increasing the prices of petrol and diesel. Today, the main culprit is the taxes.

In a very recent move, the Central government has increased the excise duty on petrol by ₹ 8 and on diesel by ₹ 13. Government has then assured the public that the increase in duty will not affect the prices as the international crude prices are lower.

The issue of the higher rate of diesel than petrol in Delhi is also related to the taxes where the Delhi government has increased the VAT on petrol and diesel by ₹ 1.67 per litre and ₹ 7.10 per litre respectively. 

This issue of the higher rate of diesel will also have a very negative impact on the transportation industry. And the rise in transportation costs will certainly lead to an increase in the various items which are transported using diesel-run vehicles. Fares for diesel-run vehicles will also increase which are buses, trains, cabs and other transport mediums. 

At the time of a pandemic induced travel restrictions and business lockdown and with 11.5% of urban unemployment, this move has been severely criticised by various political parties and state governments. While some of the criticisms are mere hypocrisy as the Congress ruled states as Punjab has also increased the prices of petrol and diesel by ₹ 2 each by levying taxes, but others are genuine. 

Increase in the price of a commodity which is responsible for more than 60% movement of goods in the country can have a lasting and deep effect on the economy of the country. The general public might find it hard to help with the good of daily needs. In recent days, prices of vegetables have been rising very rapidly and some have blamed the rising prices of petrol and diesel.

The other culprit is the way petrol and diesel are priced. It might come as a shock to some but the price that we pay is the price if the government would have been importing petrol and diesel. But India imports crude oil and it gets refined in the refineries for further selling. 

Oil refiners, who make these products in India, are paid Refinery Gate Price (RGP) based on the Trade Parity Price (TPP) which is defined as the average of the Import Parity Price (IPP) and the Export Parity Price (EPP). IPP is the price importers would pay if they actually imported the product. It not only includes the cost of the fuel itself but also freight charges, insurance, customs duty and port charges. EPP is what somebody actually exporting the product would get. IPP has an 80% weightage while EPP only 20% in the TPP calculation.

Government is trying to earn from the public who have been unemployed for months now and most of them have not been paid their salaries till now. The question is not of legality here rather morality. Is it really moral to levy a hefty tax on a public who is already unable to pay for their essential needs, EMIs and some, not even their room rents? Share your opinions.

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