Fuel prices in India are high: Reasons

Fuel price in India is shooting up at a rapid pace. Now in the majority of the Indian states are crossing 100 rupees per liter. Even Diesel is also about touch century mark within few days.

A lot of Indians are not able to bear this enormous increase in fuel price. Especially middle-class category people are struggling to fill the fuel.

 Moreover, logistics companies, Cabs drivers, delivery boys are just not getting more margins in their income.

Why are fuel prices rising? is the question majority of Indians are thinking.

There are so many reasons for the hike in fuel prices. One of the major reasons is taxes by the government. Another reason is the sudden increase in the price of crude oil in international markets. Some speculate Modi government is setting a frame to cover the losses.

In this blog, it describes why petrol and diesel prices are high? Even the blog deep explanation of each factor which ultimately causes an increase in fuel prices.

Reasons for fuel prices in India

Initially, we have to understand how the fuel reaches end consumers. Petrol and diesel end product from the extraction of crude oil. Firstly, India imports crude oil from the OPEC countries (Iran, Iraq, Saudi Arabia, Nigeria).

Then the crude oil will be under processing in India. Where the crude oil is being boiled at high temperatures. Finally, we extract petrol and diesel after various processes.

Further, the central government levies high taxes on fuel. As a result, this becomes the major factor of the hike in fuel prices. Besides state government also adds taxes(VAT) and each state’s taxes are different from state to state.

Fuel price still hikes when the dealer incorporates his commission. Eventually, the fuel reaches the end consumers.

Moreover, the fuel does not come under GST.So, there is a lot of increase in fuel prices. This is the whole supply chain of the fuels.

Even if the government increases the rates of diesel and petrol by 1 rupee, then the government makes revenue around 13,000 to 14,000 crores.

Also read: Electric bike taxies in Karnataka

Taxes on fuel prices

The majority of the fuel price hike is due to high tax imposition. Both central and state mercilessly add on tax on basic commodities. Even now also Modi government is not ready to cut down on taxes.

Because the government needs money desperately and also to support social welfare programs. Even the government is under huge losses now due to the corona pandemic. Besides the GDP in under negative 7.

Over the past five years, excise duty (central tax) is rose 167%. The government is taking a lot of revenue from adding taxes. Likewise, the government made 89,575 crores in petrol from April 2020 to January 2021.

In the previous year as well, the government made 79,230 crores of revenue.

The lump-sum amount came from diesel as well. The central government made 2,04,906 crore in the current fiscal year. 

In the previous year, 2019 to 2020 government was able to make 1,23,166 crores. while in 2014-15 after the Modi government came to power it made 42,881.

Even government is aware, that it can make huge revenue on petrol, diesel, liquor, and tobacco. So the government will never cut down taxes.

Modi government from 2014-15

When the Modi government came in 2014, it increases the taxes on fuel enormously. Even though the international crude oil prices fell to 50% of its prices.

Instead of benefitting the people, the Modi government made a sudden increase in fuel. But the government increase taxes on petrol extra 19.98 rupees. On other hand, diesel taxes also increased from 15.83 to 31.80 rupees.

Till now, there is an exponential increase in taxes on fuel prices. Even there is a 400% increase in governments revenue.

Congress government oil bonds

Earlier, the Congress government has signed oil bonds on exporting countries. This is one of the reasons why Fuel prices in India are high.

 The financial minister Nirmala Sitharaman reported that it paid 70,195.52 crores as interest on the oil bonds till now. Even she also claims that the government is liable to pay still 37,000 crores by 2026. Moreover, the principal amount is about 1.30 lakh crores.

Presently, BJP is blaming Congress for the hike in fuel price. Due to their inefficiency in repaying the debts. Now BJP government is liable to repay it now.

Fuel prices in India vary due to the rise in crude oil price

Crude oil prices in the international market took a sudden jump in prices. Due to the corona pandemic and the whole transportation system was at a standstill. During those times crude oil prices were sharply declined.

The crude oil at the international market was $65.5 per barrel in December 2019. Suddenly the crude oil prices drop to $19.9 per barrel.

As the corona pandemic was declining and also the first wave gradually slowing down in the country. So again there was an increase in crude oil as it jumps to $49.8 per barrel.

Further, there is not any hope of a decrease in crude oil prices. The crude oil pops up to $67 per barrel in May 2021. Then again jumped up to $75.32 per barrel in June 2021.

Due to a lot of variation in crude oil prices at the international market, Fuel prices were increased 24 times in May and 8 times in June 2021.

As result, Mumbai became the first metropolitan city to cross 100 fuel prices. Several states like Rajasthan, Madya Pardesh, Maharastra, Telangana, Ladakh, and Karnataka were among where fuel price touches three figures.

BJP Government spendings

One of the reasons for fuel prices in India are high is because of the outbreak of the Corona pandemic. The economy of India touched to the bottom line and even businesses were also under losses.

Moreover, there was a desperate need for vaccines to defend against the coronavirus. The Indian government spends 37,000 crores on producing vaccines.

 Also, India was also able to manufacture their desi vaccines Covaxine(ICMR and National Institue of Virology) and Covieshield(Serum Institue of India).

Even now Modi Government is ready to spend 1 lakh crore on the Pradhan Mantri Garib Yojana scheme. Under this program, free food grains will be available to the poor for 8 months.

So the government is trying to make some revenue by increasing fuel prices in India. To compensate their spending and also support to other activities like