Many people have asked us to cover this story. And honestly, we aren’t looking forward to this article one bit. Because there’s nothing new happening right now. We knew all this 2 months ago. And we know pretty much the same things now. Global crude oil prices are increasing, the taxes are crippling us and the government has no recourse. That’s the story. But if you still want the long version, here goes…
The Story
Petrol and Diesel prices have been on the rise once again. The price of a litre of Petrol breached the Rs.100 mark yesterday in Rajasthan. Elsewhere in the country, it’s the same story, albeit not as drastic. And it’s upsetting a lot of people. Including the Prime Minister, who recently lamented about India’s dependency on foreign oil.
And while you might be tempted to think this explanation is self-sufficient, it doesn’t fully explain what’s happening right now. True, India is most certainly dependent on foreign oil. And back in 2015, the government had outlined plans to reduce India’s import dependency — from 77% in 2013–2014 to 67% by 2022.
But things haven’t exactly worked out for us. Domestic production hasn’t really picked off and India’s energy needs have been on a perpetual rise. In fact, India’s import dependency stood at 83% in 2018–19. Not exactly the kind of improvements you like to see.
But that’s not the major concern right now. Globally, oil prices have been trending downwards for the past couple of years. And yet, we haven’t seen the benefits trickle down to end consumers. For instance, global crude oil prices had plummeted to $19 per barrel from the highs of $66 per barrel in early 2020. At this point in time, many people were hoping that oil prices at retail stores would fall in line.
But it didn’t.
Because the central government saw an opportunity to make some money here. After all, tax collections were abysmal. They were already borrowing too much. And they were desperately looking to fund their expenditure through any means necessary. So the central government increased excise by a record ₹10 per litre on petrol and ₹13 per litre on diesel, planning to raise a cool ₹1.6 lakh crores. States meanwhile got in on the act as well. They bumped up taxes in tandem and together these extra charges alone make up 55–60% of the final retail price today.
And look, this wasn’t a problem so long as global prices remained modest.
But the global landscape is changing. Oil-producing nations are cutting supply. They're limiting production in a bid to push prices higher. And while you could be angry at them for doing this at such a tumultuous time, you have to remember — They are looking after their own interests. Oil-based economies have only one recourse when their economy is in the doldrums — Oil. And if prices don’t firm up, they’ll be in a soup. So you should expect them to keep this up unless something drastic happens. And as it stands, crude prices (Indian basket) are now flirting at levels close to $60.
Now, this is where things get interesting. Every time we see a rise in global crude prices, one of two things may transpire. You might see a proportionate increase in prices or you might see prices remain flat. Sometimes, the Oil Marketing Companies — the likes of IOCL, BPCL etc will absorb the price increase. They’ll take the hit on their margins and sell you petrol and diesel at a reasonable price. Other times, the government might decide to cut the taxes. Once again, you'll get some respite. But most times, the cost increase will simply be passed on to you — the consumer.
So to summarize, here’s what has happened in the past year or so. When oil prices tanked, both state and central government bumped up the taxes. Granted, they were doing this in a bid to shore up revenues. But the increase in taxes meant consumers saw little to no benefit. Afterwards, when the global price of crude started inching upwards, they refused to cut the taxes and you’re now witnessing the implications of this decision. Ergo, prices will increase until somebody in the value chain decides to take one for the team. And right now, it’s you who’s taking one for the team.
Until next time…
