Crude Oil Price Decrease vs. Diesel Price Increase: A Closer Look in India
Despite a decrease in global crude oil prices, diesel prices in India have experienced significant increases. This phenomenon can be attributed to several factors, including government revenues, economy-saving measures, and the financial struggles of petroleum companies.
Global Trends and Context
The global oil price wave has experienced fluctuation, particularly due to the COVID-19 pandemic. In March and April, the prices were relatively low due to the uncertainty and economic slowdown brought about by the virus. However, from May, a trend of rise began. This global trend can be seen in the average gasoline price trend based on 90 consumer countries, and the global diesel price trend for the same.
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India's Specific Context
India, like many other countries, has faced a challenge in balancing economic recovery with the need to maintain essential services. Here are the key reasons why diesel prices have increased:
Economic Crisis and Revenue Deficit: The lockdown during the COVID-19 pandemic resulted in a significant revenue deficit for both central and state governments. These governments need to pay salaries, social security, and other essential expenses, making it necessary to increase revenue through various means. Tax Levies on Fuels: The government has imposed higher taxes on petrol and diesel to make up for the lost revenue. Additionally, the loss in demand for petroleum products has further eroded the revenue base.A Strange But Real Scenario
When the economy is in danger, governments often look for every possible source of revenue. Thus, it is not surprising that taxes on essential commodities like fuel are being increased. An analytical view reveals that these taxes are being introduced despite the fact that these products are crucial for economic functioning.
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While many essential items face no reduction in taxes, it is paradoxical that these essential products, such as sanitizers, continue to bear the brunt. The current 18% GST on sanitizers seems incongruous given the critical nature of these products.
Historical Context of Fuel Pricing in India
Historically, the price of fuel in India was determined based on the prevailing international crude oil prices. Consumers were optimistic that whenever international crude oil prices decreased, fuel prices would automatically follow. However, this was often not the case. In times of severe crude oil price decreases, the government would impose excise duties, and the state governments would impose VAT, leaving the actual fuel prices unchanged.
Such government actions were in response to the financial struggles of petroleum companies, which faced challenges due to the lockdown and reduced fuel supply. The need to support these companies further complicated the situation, leading to higher final fuel prices.
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Conclusion
The disparity between global crude oil prices and domestic diesel prices in India is a complex interplay of economic, political, and fiscal factors. While the global market experiences fluctuations, government policies and economic conditions specific to India create an environment where diesel prices continue to rise.