The effect of rising fuel prices – an Indiandrives insight

Save me God! Why did I ever buy a car which sips on crude oil as a refreshment or energizer? Why didn’t I go with the one with black oil or why did I buy a car in the first place? All these questions would be clogging the minds of car buyers who opted for petrol cars whereas the ones who brought in their diesel fuelled cars or even alternate fuelled cars would be laughing or scoffing at the price increase. Don’t believe us, then just take a look at the prices of petrol which have nearly went up by a whooping 400 percent in the last 10 years. Starting with 2001, when petrol used to be priced at around Rs 26 per liter, it went upto Rs 34 per liter in 2004 and then increased to Rs 50 something in 2007. Now it stands at an astounding Rs 64, which is said to increase till Rs 70 in the coming months and not years. That’s something which can be called as amazing and really silly. This, we are being told is because oil companies want to align the prices of petrol from the domestic market with that of the international one. Strange. Why can’t they rather align it with the price of petrol available in Kuwait or some other Arab country? A recent report by the Empowered Group of Ministers or EGoM said that diesel prices are also said to increase in the near future at a rate of Rs 4 per liter.

This would rather be the first cause where all Indians are voicing their opinion and are unanimous about it. The reason behind it is that every household in India now has atleast a bike if not a car. Fuel price hike means that it would grossly affect the calculations that a middle class person has in mind while buying a vehicle. Even if they don’t have a vehicle at home, they would be using the public transport. Sensing a fuel hike, there would also be a price hike in the travel fares, which may not be much, however in the longer run would definitely affect many. In the US, petrol is available at a slightly lower rate than diesel. For the records, diesel retails at Rs 43 per liter whereas petrol comes in at a slightly lower Rs 41 per liter. However many would have heard or even read that the Americans make a hue and cry about the rising fuel prices. It must however be noted that its only the people with American origin who complain and not everyone out there. Migrants like the Chinese and Indians still buy cars in large numbers and are very happy about the price that they pay for the fuel and stuff. As far as salary goes, obviously the people living in North America earn far more than what we do out here. For the average or comparison sakes, a person living in the United States earns approximately Rs 23 lakhs while for the one staying in India is only Rs 40k. Well but then fuel supplying agencies rarely charge fuel prices based on the average income or stuff. It depends on how fuel the country as a whole produces or requires and whether the so called country is a part of OPEC.

About 40 percentage of the world’s oil supply is governed by the Organization of Petrol Exporting Countries or OPEC. Out of all the countries in the world, only 13 are a part of it. Since we Indians rank at number 23 in the list of oil producing countries and hence we are out of OPEC. All the 13 nations are the ones who control the price of fuel as also its supply and production all over the world. So due to this, the prices of fuel coming down in India is next to impossible and that is until India itself finds suitable reserves of oil deep down somewhere in the Arabian Ocean. However the price of diesel is subsidized here so that most of the buyers don’t feel that they are giving in something more to buy the “unclean” fuel. As the price of petrol increases however more than one third of the cars being sold in India are diesel powered. However there are some car manufacturers who refuse to sell diesel cars in India and the last remaining one is Honda. Other manufacturers who don’t have diesel motors in their lineup are atleast introducing in LPG or CNG variants of the same model. The Government of India pays out of the nose to diesel companies for continuing their fuel supply to the Indian vehicles. It is said that the government pays about Rs 4 per liter of diesel sold since the government wants diesel to continue with its subsidized agenda.

Compare this with fuel prices around the world. In Venezuela, its only Rs 1.05 for a liter of petrol while for diesel, its Rs 0.45 for a liter. However in Brazil, it is the highest with Rs 76 per liter of petrol and Rs 57 for a liter of black oil. UAE has very high oil reserves and even then, the price of petrol stands at Rs 21 per liter whereas Rs 36 is the rate of diesel. Seems like we have better times here in India as compared with them or maybe even worse. The situation doesn’t look to change in the near future and by the end of 2015, we would be paying approximately Rs 100 per liter of petrol with diesel coming in at Rs 60 per liter. Move onto CNG or LPG is our recommendation and you can save yourselves some money as also contribute to a lower polluting atmosphere overall.

One Reply to “The effect of rising fuel prices – an Indiandrives insight”

  1. The problem is that we fail to ask how much petrol really costs. Let’s try some simple arithmetic. International crude oil prices are hovering around US$ 112.5 per barrel. That translates to about Rs 5,085 per barrel. Each barrel contains about 158.76 litres. So, effectively crude oil costs Rs 32 per litre. Now, add the cost of refining it to petrol or diesel. According to an oil company official, the refining cost is about 52 paise per litre. Add about Rs 6 as capital costs for the refinery. Then there’s the cost of transportation (Rs 6) and dealer’s commission (Rs 1.05). So, adding all that, the price of petrol comes to about Rs 45.6 per litre. But how much are we actually paying for petrol? Rs 68.3 in Mumbai, Rs 63.4 in New Delhi, Rs 71 in Bangalore!

    Why are we paying so much more and to whom? The answer is tax. Not many are aware about the huge quantum of central and state government taxes and duties levied on fuel prices. In some states the tax component is pretty close to 50%. To add to that, these taxes are levied as a percentage of the basic price of the fuel and aren’t fixed per litre. That means rising fuel prices only add more to the government’s kitty. But all we hear about are the huge subsidies and the bleeding OMCs.

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