Why India Cannot Control Petrol Prices Easily?

As the price of petrol rises in India one thing that always crosses people's minds is:

The Government can only simply reduce the petrol price?

It may seem like a trivial solution. Petrol is after all a daily item used by millions of people! Students, office workers, delivery personnel, farmers and businesses use fuel.

The story is not as easy as it sounds, though.

The prices of petrols in India are tied with the international markets, petrol tax, international politics, and even the value of the US dollar. Hence in India petrol prices are not easily controlled.

Let's have a simple and easy understanding of petrol price fluctuation today in this article what is really happening.

India is the biggest importer of crude oil.

It is easy but primarily, because:

India is very dependent on crude oil imports.

The form of petroleum that occurs in the earth is called crude oil.

The form of petroleum that occurs in the earth is called crude oil. It is refined into:

• Petrol
• Diesel
• LPG gas
• Aviation fuel

India  has a small production of crude oil, but that was not enough to support India's biggest population and development.

Thus, India is importing crude oil from:

• Saudi Arabia
• Iraq
• Russia
• UAE

It also implies that India is not the sole country that can determine the price of oil because it has to depend on the world's suppliers.

Global Crude Oil Prices Keep Changing

Crude oil price is not fixed in perpetuity.

They alter because of numerous foreign factors such as:

• Wars
• Political tensions
• Oil production cuts
• Supply problem
• Natural disaster like (earthquake)
• Global demand increase

If oil-producing countries reduce production, for example, the world's oil prices jump up quite quickly.

Fuel prices in India can be influenced by events occurring far away from the country.

I can remember watching reports on TV about wars across the world and then watching the prices on petrol increase in days. It was at that moment I realised how much the world economy was tied up.

Oil is a currency that is traded in USD.

The other factor is the U.S. dollar.

The majority of the international trade of crude oil is done in USD.

If this is the case, it poses a challenge to India if:

The dollar strengthens.The dollar gains strength.

OR

Indian Rupee weakens with the fall.

Despite the price stability in oil prices, India may have to pay more, as the cost of currency conversion is increasing.

Let's say that you buy a product from a foreign country online. If the foreign currency rises in value, your bill will automatically rise. It's the same for oil imports.

That is why petrol prices in India are indirectly appreciatively hugely affected by the U.S. dollar.

Fuel taxes account for much of the price of energy.

Petrol prices are thought to be only affected by the price of crude oil, although taxes contribute an important fraction to this.

In India:

In the case, taxes are levied by the central government.

The governments of states also have taxation policies.

These taxes are a substantial part of petrol prices.

Why fuel tax given to government?

Fuel taxes add to revenue collected for:

• Roads
• Infrastructure
• Welfare schemes
• Government spending

Raising the issue of funding elimination of fuel taxes could be financially challenging for the governments.

So, it's not so easy politically and economically to cut petrol prices.

When it comes to travel expenses, it has an effect on all things.

Transportation is associated with petrol and diesel.

During times of high fuel price:

• Fares for bus travel might go up.
• Delivery charges rise
• Goods transportation becomes expensive.

This eventually affects:

• Vegetables
• Groceries
• Online shopping
• Daily products

Fuel prices have an impact on virtually all aspects of the economy, since transportation is a part of the activities of most enterprises.

Hence, decisions with respect to petrol prices are taken with caution.

India has a huge energy demand with a large population.

India has the highest energy consumption in the world!

Millions of:

• Cars
• Bikes
• Trucks
• Buses
• Factories

Use fuel on a daily basis.

The high demand can lead to substantial in- and intra-economical effects within the country even when small price fluctuation on the international market occurs.

It's not easy to deal with the fuel supply of such a big population.

Pressure from the political and public domain.

The price of petrol is also a political issue.

Whenever prices rise:

• Public frustration increases
• The opposition parties criticize the government.
• Social media discussions grow.More activity on social media.

Lowering prices is a matter that governments have aimed at and which is often called for just before elections.

But artificially setting prices would generate long term financial difficulties, however.

That is one reason why governments to some extent reduce taxes, instead of simply fixing the price of fuel.

The reasons for the variations in petrol prices from state to state.

Petrol prices may have been seen fluctuating from state to state in India.

This happens because:

• State taxes differ
• Transportation costs differ
• Local policies vary

For instance, the price of petrol in one city may be a little cheaper or dearer than another city.

This will make the allowance for fuel even more complicated at a national level, given this state level tax.

Is India going to be able to remain independent from foreign oil?

India is gradually moving towards reliance on less foreign oil.

Some of these are important steps to keep in mind:

• Encouraging electrification (eVs)
• Expanding solar energy
• Encourage ethanol blending
• Improve public transport

Electric scooters and Electric Vehicles (EV Cars) are becoming popular these days.

However, the journey towards a fully-fuel free India will be long, tedious and arduous in an increasing country.

What will happen if petrol prices are artificially ruled?

In certain countries, prices of fuels are heavily regulated by the government.

However, this can cause issues such as:

• Government financial burden
• Economic imbalance
• Fuel shortages
• Increased national debt

Governments should do balance between:

• Public relief
• Economic stability
• International market conditions

One of the reasons for petrol pricing being a tricky subject is this balancing act.

The impact of common people.

Most people are affected by high petrol prices.

Students

Travel expenses increase.

Office workers

The daily commuter fare to and from work is expensive.

Farmers

The price of farm machinery is going up because of diesel.

Businesses

The cost of transportation and logistics is increased.

Families

There isn't a lot of money available every month.

Even those who have not been concerned directly are indirectly affected when they have to pay for the goods and services.

Final Thoughts

At a first glance, the price of petrol is much more complicated than it might seem.

There are several factors that determine the prices of petrol in India such as international oil prices, foreign currency exchange rates, global politics and taxation policies, making it difficult for the country to control them.

Governments can sometimes cut the prices of fuels and can offer temporary reprieve; it's very hard to be able to control the price of fuels permanently.

India's use of crude oil could be phased out slowly as the country promotes renewable energy and electric vehicles.

For the time being, the global oil prices will remain a part of Indian economy and exist in everyday life.