High fuel prices in India – What are the causes?

Theme :-

  • There is a huge criticism over high fuel prices in India despite having low crude oil prices internationally.

Causes :-

  • Petrol and diesel pricing depends on several factors. Final retail price = crude oil price (international price of crude oil) + refinery charges + transport charges + dealers’ commission + Central Excise Duty (Imposed by Central government) + Value Added Tax (VAT) & surcharges (Imposed by state government).

    Among all these factors, the main thing is crude oil, which is a raw material for petrol and diesel. But the retail price is more than double the price of crude oil. In 2014, one barrel of crude oil was priced at $105, and now it is at $74. But the present retail price of petrol and diesel are higher than the prices in 2014. Because taxes on petrol and diesel are continuously increasing.

    At present, approx 48% of final retail price is taxes (Excise duty, VAT & surcharges). This is the main reason for the high fuel prices in India despite low crude oil prices internationally.

  • Petrol and diesel are not in the ambit of GST (Goods & Services Tax). If they come under GST, taxes would be lower and hence the retail prices.
  • The efficiency of petroleum refineries in India are one of the worst in the world. This is contributing to the price rise of petrol and diesel.

Why Government is imposing high taxes on Petroleum products :-

  • India is third in the top countries that use crude oil after USA & China. But the problem is that India do not have much oil reserves. 80% of the crude oil we use is imported. This is a huge burden on foreign exchange reserves (with which we import goods from other countries). To tackle with this situation, government is imposing high taxes to discourage usage of petroleum products. Government is of the opinion that high prices will force people to conserve oil and to use alternatives such as electric vehicles and renewable energy resources.
  • More and more people are buying their own vehicles and hence the demand for petrol and diesel is increasing and thereby the pressure on foreign exchange reserves and ‘Trade deficit‘ are increasing. This will further lower the value of rupee. To deal with this, government had to increase taxes.
  • Majority of the revenue from fuel is spent on improving infrastructure facilities, which is the most important need for the present India.
  • Indian government is giving subsidies to electric vehicles. So, to compensate that expenditure it had to increase taxes on fuel.
  • Vehicles that run on petrol and diesel are contributing to pollution.

What needs to be done :-

  • Reducing taxes on petroleum products will result in reduction in costs of transport and thereby reduces the price of many consumer goods. This will result in increase of markets and economy.
  • Instead of depending on these taxes on petrol & diesel, Indian government needs to create more revenue sources such as increasing the number of people that pay income tax (Right now only 4% of the population is paying income tax), collecting bad loans of public sector banks etc.
  • There is a dire need to encourage people to conserve oil and to use renewable energy resources. This will reduce the burden on foreign exchange reserves as well as leads us towards eco-friendly living.
Also Read :  Should the rich and wealthy in India be taxed more?

Conclusion :-

If the crude oil prices are increased in the coming days, there will be a huge burden on people whether they own a vehicle or not. Because high fuel prices increases the cost of transport and thereby increases the price of consumer goods. To avoid that situation, government needs to work on reforms in petroleum pricing.

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9 comments

  1. HIGH FUEL PRICES IN INDIA
    —————————————–
    The high fuel prices is not only affecting the day to day life of many people but also thriving people to use of alternative sources of fuel.
    i think one of the main reason for increasing fuel prices is up growing demand of its usage.”NOW PEOPLE ARE MORE FASHIONABLE TO USE MULTI-BRAND VEHICLES RATHER THAN USING PUBLIC
    TRANSPORTATION”.THIS RESULTS DAY TO DAY TRAFFIC CONGESTION ,UPRISING DEMAND OF FUEL USAGE AND ALSO POLLUTION.
    For getting its solution ,following
    steps may be useful:
    >Govt should encourage people to use public transportation in their working hours.
    >their should be a positive approach for the usage of battery driven and electric-hybrid vehicle as the mode of transportation.this also reduces petrol/diesel dependency.
    >many reputed automobiles companies should design their products as per the use of least fuel demands and better efficiency.
    >Its time to change the dependency on diesel/petrol and approve bio-diesel as alternative fuel.

    Lastly high fuel price only be fixed by attaining alternative solution to meet ongoing demand,introducing fuel reservation infrastructure and also must have public awareness of using vehicles.




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  2. there is need to trace the well of crude oil in outskirts of india , we need to focus much more on conventional energy methods and india has potential to spend money on discovering, rather than importing it from gulf countries




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  3. Increase in the fuel prices is hampering the entire youth. if electrification is initiated, implementation will be done in years. previously also the same taxes had been implemented but the price ws still linient. but now, more taxes is being processed which leads to high price. There would be a time where we would pay Rs.100 for a litre of petrol




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    1. True! There should be more efforts and incentives to encourage electric vehicles, so that it will not take much time to reduce the dependence on fuel.




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  4. The government has to put some investment in developing public transport system to attract public to choose over their private ones. And we public should support it, simply because we in a society, sharing the common mother nature.




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  5. If the govt.focus on complete electrification of Indian railways rather than focusing on high speed it will be a +point in reducing the fuel prices




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  6. Fuel has been a threat for environment, economy, health and social life. People have to practice natural ways as walking, cycling and group/public transport etc. It is awareness, very much essential.




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