Petrol Price Hike
The covid-19 has impacted every individual on different strata, the Pandemic and lockdown have financially weaken the country’s economy, the most affected section of society is the common man.
Most of the household has bikes and car, therefore petrol and diesel become a basic necessity for them and the prices of petrol and diesel are on its peak rising rapidly. The price of crude oil in 2020 is $43/barrel has raised to $63/barrel in January 2021 and now it has crossed $70, the price of petrol in our country reached Rs.100/liter.
Now the question that comes to your mind is "Why there is so much fluctuation in the prices? What will be the consequences? Is there any chance of increasing prices? and what is the solution to lavish the burden? and the most important one is that does attack Saudi Arabia affect us?"
Let’s discuss the first answer, why the prices are increasing so rapidly when the lockdown took place in the year 2020, all the human activities came to an end due that there was a downfall in the demand for petrol in the global market which resulted in the crash of crude oil, in April 2020 the price of crude oil has reached $19/barrel, when the unlock started, things are getting normal there is a change in the price also, in October 2020 the price of the crude oil reached $43/barrel, things remain the same because the prices till yet are acceptable but when the vaccine roll out in the market the demand for crude oil increased which again caused the fluctuation in the prices and the result is that in January 2021 the prices reached $67/barrel.
The fluctuation in the prices is majorly done by OPEC i.e. organization of petrol exporting countries, OPEC is a cartel of 13 major oil-producing countries. According to estimates, OPEC manages 44% of global oil production and 81.5% of global oil reserve, holding a high percentage gives OPEC the power to fluctuate prices and regulate production. When the vaccine came to market the OPEC has started to regulate the oil market. After the unlock the demand for petrol increased and the supply was limited which raised the prices. Not only this the world’s largest oil-producing country Saudi Arabia has reduced the oil production by 1 million monthly.
Another aspect that comes to our mind is that, Does the prices are affecting all the countries equally or just Indians paying high petrol prices, so the research has given some interesting facts like there are 114 countries in the world which pay less price than India, for example – in Venezuela the price of petrol is INR 1.45/liter.
Currently, India is the highest tax-paying country, with approximately 63% charged as a tax on the total price of the fuel. The reason for so high tax is that in India we pay 2 types of taxes, the first one is an excise duty which is charged by the central government and the other is the VAT ( value-added tax ) which is charged by the state government. The Excise duty is fixed that is 33% and the VAT differs from one state to another, on average the VAT is approximately 24% but there are few states where it is more than 30%.
Petrol becomes one of the most basic requirements of the people and it is the major source of revenue of the government, and this revenue is used for the development and welfare of the society. and if the government reduces the tax then the revenue collection will be less which leads to a fiscal deficit and the financial condition of the country after lockdown is very poor.
The direct effect will be seen on those who use private vehicles. Their purchasing power will be reduced as the bulk of the income will be spent only on fuels. This will also have a huge impact on the automobile sector. After the price of petrol has been made, the demand for automobiles will be very low in the market and the demand will also be affected due to the decrease in demand. In any economy, one sector is interdependent from another sector, So if the automobile sector would be affected then consequently all the sectors would be affected, due to this, there will be a huge impact on GDP.
Three viable solutions appear in these conditions. The first is that the government should reduce taxes, but the official statement of the government had come that tax will not be reduced. There is also a weak opposition factor here. Opposition parties in India are quite scattered and that is why the opposition is not strong. When there is the pressure of opposition, there is a check on the government and when the pressure of the opposition is not there then the government starts to arbitrary actions.
The second solution is to reduce the consumption of petrol, thereby reducing its demand and price changes. But yet no other source of energy is so developed that we can substitute petrol or diesel. For this, the first focus to do is to develop substitutes.
The third solution is to not regulate the prices and allow demand to drive through the consumption and not to reduce the production, then the price will come down automatically.
Is there any chance of an increment in petrol prices?
Yes, according to estimates and reasonable circumstances there are huge chances of an increase in petrol prices. There is a reason behind it this statement that Saudi Arabia is the world's highest oil-producing country and a large oil plant has been attacked there. A ballistic missile and drone attack occurred on a very large part of 'RAS TANURA' port in Saudi Arabia. This port is the largest port and oil reserve ever.
It is attacked by the 'HOUTHI' military which is the Association of Yemen country. The Spokesperson of this military has claimed responsibility for the attack. There is a civil war going on in the country of Yemen for there reason of differences of religious opinions of 'SHIA' Muslims and 'SUNNI' Muslims.
After such a big attack, the main concern is that Saudi Arabia's oil production will reduce and it will be a negative drive for supply which will lead to the increased price.
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