This Article is written by Shivangi Rajiva (5th-year BBA.LLB student from Symbiosis Law School, Hyderabad)
PETROL CRISIS IN 2021
“If I didn’t have the burden of oil bonds, I would have been in a position to reduce excise duty on fuel.”Finance Minister Nirmala Sitharaman, as quoted by PTI.
(16th August, 2021)
The constant growth in the costs of petrol and diesel has fuelled inflationary worries in recent months as well as changing consumer spending patterns. With the price crossing the 100 lines in New Delhi and Mumbai, the oil prices have become more volatile as crude oil prices showed a strong trend. The combined impacts of increased benchmarks Brent prices and multiple tax increases in recent years have raised fuel expenses to the present standards. The record high price of fuel and diesel leaves some Indian automobile owners unable to pay their cars’ costs and is driving the transportation industry to adapt.
Petroleum is roughly double the cost for purchases from big Indian cities like Mumbai and New York, thereby easing the recovery from virus-related travel limitations on Asia’s second-largest oil joker. Last year, even as it put the country on a national lockdown with global petroleum prices falling, the Federal Government maintained higher taxes. In the last three years, Mumbai fuel expenses have grown by more than 25% while in the same period, according to statistics from Indian Oil Corp, diesel prices have risen by one third. The upward trend in prices adds to the Indian economy’s inflationary pressures in a broad commodities gathering.
WHY ARE THE FUEL PRICES RISING?
India has problems as it seeks to balance the additional income requirements of high excise taxes and increased fuel inflation and its influence on global inflation with rising crude oil prices. As the world’s third-largest oil importer, India, whose residents pay exceptionally high rates for fuel in contrast to neighbouring nations, has been badly hit by current worldwide oil prices. Because of the growing price of fuel, households across the nation are facing the dent amidst the increased medical expenditures as a result of the COVID-19 pandemic and rising commodities costs which send their monthly budget cords to a very next level. As a result, households have reduced their savings or had to settle for expenditure.
The hike has been in the crude price internationally, including Crude Indian Basket which includes crude Oman, Dubai, and Brent. After the Petroleum Exporting Countries (Opec)-plus organization resolved to extend production limits, world crude oil prices were rising. In the last year, the price of Brent crude oil has now risen to $75.35 per barrel over 76%. So far in 2021, the Indian oil basket has increased to $71.63 a barrel, over 32%. In recent weeks, gas prices in various cities throughout the country have broken the threshold of Rs 100 per litre. The main reasons behind the new wave of petrol- and diesel price increases in the country are to confirm international crude oil pricing and excessively high fuel taxes.
THE TAX EFFECT
The main cause of the increase in the price of fuels in the country is mainly because of the tax rates (central & states) imposed by the government. Although the global crude oil prices fell by 2020 because of reduced demand, India continued to pay higher fuel rates because of the various numbers of taxes imposed. However, the growth of worldwide crude oil is not the sole fault of India’s extravagant prices, reflecting the fact that, even in times when international crude oil prices were above the current levels, India’s rates were considerably lower in the past.
India largely satisfies its domestic need for oil through imports. The Modi-led government charges cess and excise duty on fuel with value-added tax (VAT) that is levied by the state government. Taxes together make about 58% of petrol’s sales prices, and now roughly 52% of diesel’s retail sales price. If fuel costs Rs 100 per litre, this implies that Rs 58 taxes collected by Union and the State government combined are calculated.
IMPACT ON THE CITIZENS OF INDIA DUE TO THE HIKE IN FUEL PRICES
The rising prices of fuel in the country will have a cascading impact on the companies across many industries, which will then ultimately impact the citizens of India.
First of all, those who do not possess a personal automobile are affected since they have to pay more for public transportation. In view of increasing operating expenses, the public transport sector is already pushing up tariffs. Logistics and goods transport companies are also likely to increase their service charges shortly, due to the increase in fuel prices. Demands to raise the delivery rate of products have already placed consumer-driven firms in a difficult position. The Economic Times reports show that transporters and freight carriers are requesting an increase in freight charges of between 10% and 15%.
As most items and supplies people consume are delivered from various areas of the country on a regular basis, their cost will most certainly continue to increase. Just said, everything is going to be more expensive from the cuisine you order to the veggies and fruit you buy. India’s economy is anticipated to see a delay in recovery in such a scenario since it would have a direct influence on citizen spending levels. If the prices keep up roaring as it is now, it would add up more to the on-going inflation. Although inflation has eased in recent months, a continued increase in fuel costs might again stimulate inflation.