why petrol price increase in India ?
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why petrol price increase in India day by day
India is the fourth largest consumer of energy in the world, but there is less energy consumption per person here. With the increase in the number of private vehicles, the overall consumption of petrol and petroleum products in India is increasing. There was a registered growth of 5% in the year 2011-12 and to meet the growing demand, the government has to import more and more petrol. If the cost of the entire country is considered then 80-90% is made to pay the import bill on petroleum products, which is considered as the expenditure of the countries. Therefore, more demand for petrol than supply is a major factor in its rising price in India.
But the increase in the price of petrol has an upside effect. Since all goods are transported to vehicles running on petrol or diesel across India, hence the increase in the price of petrol also results in the increase in prices of these items. The common man most suffer from these. She is already bearing the pressure of inflation and any increase in the price of petrol will reduce its actual household income. Today every Indian spends almost half of its income on food items. If the cost of petrol in India increases, then all food items will become expensive. This will reduce savings and spend more. As a result, India will have an impact on real estate, banking, and other sectors. In the end, more and more people will be pushed to the poverty line.
Why India needs to import oil?
India does not have enough oil to meet the growing demand for oil. Approximately 1.4 million barrels of diesel are used individually by farmers, trucks, and industries in India every day. Therefore, to meet the growing demand, most of the oil is imported from other countries, which is more costly. It has been observed that in the three year period, the price of petrol has increased 10 times and is still increasing. The end result of the increase in petrol prices is inflation.
Not only this, but the status of Indian currency is not currently favorable. India is going through a crisis where the value of Indian rupee is falling in the US dollar. This is the reason why oil marketing companies (OMCs) like Indian Oil Corporation (IOCL), Bharat Petroleum (BPCL) are paying more for crude oil in the same quantity. Because of this, OMC has lost around Rs 4,300 crore in the last six months to sell petrol at a lower cost.
The price of petrol in India is stable, but in 2010 to control petrol, these companies have seen a big difference in cost. Oil marketing companies can increase the price of petrol Oil marketing companies have done this by adding the domestic price of petrol at international market rates.
Why is the price of petrol in India increasing?
One of the major reasons for the increase in the price of petrol in India is the fall in the price of a rupee. Therefore, we should understand why the price of rupees is constantly falling. Economists believe that the current euro crisis is one of the fundamental reasons for the decline in the price of rupees. But if this is the main reason why the price of pounds, Brazilian rial etc. is not being affected to that extent? In fact, the price of the yen has risen from the dollar price.
There may be other reasons for this. Increase in fiscal deficit (the difference between revenue and expenditure) is a factor in the currency crisis in India. We spend more than what we earn. The fiscal deficit for the year 2011-12 was Rs 5,21,980 and for the year 2012-2013, it was Rs 5,13,590 crore. The main reason behind the fiscal deficit is the subsidy given on financial instruments or petroleum. For the year 2012-2013, the cost of subsidy on oil is estimated at Rs 43,580 crores and when the loss is incurred by the OMC, the total amount in it is Rs.1,14,000 crores.
The current earning of the government is less than its expenditure, which means that the government’s expenditure is increasing. In addition, the fiscal deficit is linked to trade deficit which means more imports than exports. Oil is the major share of India’s imports as oil imports are always paid in dollars, so importers need to buy dollars by paying rupees. The current currency crisis means that more rupees should be paid against the dollar so that there can be more rupees in the market. On the implementation of demand and supply theory, the rupee is constantly losing value and OMC has to pay more for the same amount of oil imports.
If the price of oil products has not increased, then India will continue to face this deficit. Due to the increase in price, the demand will decrease, instead of requiring a few dollars for oil imports. The trade deficit will also decrease, which will cause less pressure on the rupee-dollar rate. Not only the price of petrol but also the price of diesel, LPG and kerosene will increase so that more impact. This will improve the fiscal deficit of the government and increase economic growth.
On the other hand, the increase in petrol prices can be controlled if the government reduces revenue from taxes on petroleum. 35% of the government’s income is generated through petroleum taxes, since there is no other option for this, so it will probably not be by the government. Therefore, the price of petrol will definitely increase. But in reality the government will have to take a strong decision, with the problems of rising prices, many other problems like poverty, expansion, costly living, frustration etc will be solved.
How is the price of petrol calculated?
Petrol is priced on the basis of supply and demand factors worldwide. Foreign suppliers sell crude oil to oil marketing companies (OMCs) in India at minimal prices. The daily price of the distribution price and the crude oil in the refinery is considered to calculate the actual cost of petrol in India. A barrel of crude oil contains about 160 liters of oil, which is valued at US dollars. To calculate the value of 1-liter crude oil, the first US dollars are converted into Indian Rupees and thereafter are divided by 160.
After the purchase, crude oil is taken to the refinery in India. At present there are about 20 refineries in India, in the distillation towers of these refineries, crude oil is separated into various products like petrol, diesel, bitumen etc. The cost of distillation and refining increases in the price of petrol. Apart from this, the cost of carrying crude oil and transportation from ports to the refinery is added.
Separated petrol is now ready to be deposited in the oil storage tanks of oil companies. Oil companies now pay refineries and in this, the cost of gasoline transportation is added to refineries from OMC tanks. Therefore, the actual price of the gas supplied by the consumer includes all commissions, VAT, excise duties, total fees, and taxes, along with the above all costs.
Thus, the cost of petrol is the cost price, which includes purchase, refinement, and marketing, including central and state taxes.
Friends, the simple thing is that if the excise duty and the state government reduce VAT, then the cost of petrol and diesel can be reduced.
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