Petrol and diesel prices in India are rising because India imports a lot of oil, and the price of oil has been going up. The government also taxes petrol and diesel heavily, which makes them even more expensive.
The high price of petrol and diesel is hurting the Indian economy by making it more expensive to produce goods and services. This is leading to inflation, which is making it harder for people to afford basic necessities. The high price of oil is also widening India’s current account deficit, which could lead to a weaker rupee.
The government could help to reduce the impact of high petrol and diesel prices by lowering taxes on petroleum products and bringing them under the ambit of the GST.
CAUSES FOR RISE IN PETROL AND DIESEL PRICES
Demand and supply:
Demand: The demand for petrol and diesel increases when the economy is growing and people are spending more money. In recent years, the demand for oil from India and China has increased sharply, which has pushed up prices.
Supply: The supply of petrol and diesel is controlled by oil-producing countries such as Saudi Arabia, Russia, and the US. These countries can limit supply to drive up prices. In recent years, the production of shale oil in the US and Canada has increased supply, which has helped to lower prices.
OPEC
OPEC is an organization of 15 oil-producing countries. It controls about 42% of global oil production and 72% of the world’s proven oil reserves.
OPEC is a group of countries that produce oil. OPEC controls a lot of the world’s oil, so it can influence oil prices by changing how much oil it produces.
OPEC can raise oil prices by producing less oil. OPEC can lower oil prices by producing more oil.
Other things can also affect oil prices, such as wars, hurricanes, and how fast the global economy is growing.
OPEC is not always able to control oil prices completely. For example, if there is a war in an oil-producing country, that can disrupt supply and raise oil prices, even if OPEC is producing a lot of oil.
High taxes on fuel
The government taxes fuel heavily, which is one of the reasons why petrol and diesel prices are so high.
In 2017, the government started changing fuel prices every day. Before that, prices were changed only on the 1st and 16th of every month.
Since the government started changing prices every day, they have gone up steadily. This is causing problems for consumers, who are having to pay more for fuel.
Experts say that the real problem is not the deregulation of fuel prices, but the government’s high taxes on fuel. These taxes have been making fuel prices higher in India than in other Southeast Asian countries.
The value of the rupee against the dollar
Oil is bought and sold in US dollars. When the value of the rupee against the dollar goes down, it means that it costs more to buy oil. This makes fuel prices go up.
In recent years, the value of the rupee has been falling against the dollar. This has made fuel prices go up in India.
IMPLICATIONS OF RISING FUEL PRICES
Higher fuel prices make manufacturing more expensive
When fuel prices go up, the cost of manufacturing goods also goes up. This is because many of the raw materials and packaging materials used in manufacturing are made from petroleum products.
When the cost of manufacturing goods goes up, the prices of those goods also go up. This is called cost-push inflation.
High inflation rate means higher interest rates
Higher fuel prices can also contribute to inflation, as they can increase the cost of goods and services. The impact of rising fuel prices on inflation depends on how much businesses pass on the higher costs to consumers.
High oil prices hurt the economy
When oil prices go up, it makes things more expensive for businesses and consumers. This can slow down economic growth and worsen the current account deficit.
The current account deficit is a measure of how much a country imports compared to how much it exports. When oil prices go up, India imports more oil, which widens the current account deficit.
A wider current account deficit can put pressure on the rupee and make it weaker. This can make it more expensive to import other goods and services.
Higher oil prices can also lead to higher inflation. This is because businesses pass on the higher cost of oil to consumers in the form of higher prices for goods and services.
Higher inflation can lead to lower consumer spending and investment. This can further slow down economic growth.
Effect on industries
High fuel prices hurt industries that use oil
Industries that use oil as a major input, such as wax, paints, tires, fertilizers, footwear, construction, and cement, are directly affected by high fuel prices.
The aviation, lubricants, paint, rubber, and plastic industries are among the major industries that are affected by high crude oil prices.
What can these industries do to reduce the impact of high oil prices?
These industries can try to reduce the amount of oil they use and find more efficient ways to operate. They can also try to reduce the cost of their raw materials and packaging materials.
However, it is important to note that some of the cost of higher fuel prices will inevitably be passed on to consumers in the form of higher prices for goods.
Rise in transportation costs and essential commodities
High fuel prices make transportation, food, and other essentials more expensive
When fuel prices go up, it makes it more expensive to transport goods and services. This can lead to higher prices for essential commodities and food items.
If fuel prices stay high for a long time, it can reduce the amount of money that households have to spend on other things. This can force them to make difficult choices about how to allocate their resources.
What can the government do to help?
The government can help to reduce the impact of high fuel prices on households by:
- Providing subsidies on fuel and other essential commodities.
- Investing in public transportation and other alternatives to driving.
- Promoting energy efficiency and renewable energy.
The high price of petrol and diesel in India is caused by the government taxing it a lot, not by the price of oil going up in the world market.
