Girish V S
Managing Editor BFSI Vision

Petrol Pricing Enigma

Petrol price hikes are a mystery. The consuming public is told that prices need to go up either because the USD has appreciated or Rupee has depreciated or international crude prices have gone up. On the face of it this is a very likely explanation. The only problem is that the data does not support it. I did a back of the envelope calculation, using data from the internet. I looked at the data from 1st August 2013 to 1st July 2014. The window was chosen to illustrate the problem. I choose Brent Crude – the Indian crude basket is priced lower than Brent. Take a look:

  Date Petrol In Mumbai USD/INR Brent Crude in USD  
  01/08/2013 78.61 60.75 109.94  
  01/09/2013 81.57 65.71 115.49  
  14/09/2013 83.62 63.29 113.31  
  04/01/2014 81.31 62.18 106.71  
  01/03/2014 82.07 61.83 111.26  
  16/04/2014 80 60.25 109.71  
  01/07/2014 81.75 60.06 111.03  

Get the picture? Take a point to point comparison. On 1st August 2013, USD was at 60.75 and crude at USD 109.94. Petrol in Mumbai was available at INR 78.61. On 1st July 2014, USD was at 60.06 and Brent Crude at 111.03. Petrol price in Mumbai is at INR 81.75. What is the reason for this hike?

Between, 1st September 2013 and 14th September 2013, USD went down from 65.71 to 63.29, and the Brent crude from USD 115.49 to USD 113.31. But petrol prices went up from INR 81.57 to INR 83.62!

Is this a rip off? Are we being exploited by the oil ministry on behalf of the oil marketers? While nothing has changed in the international markets, the prices in India keep moving up. As consumers we need to know how these prices are calculated.

If the government is conscious of the poor it needs to do one small gesture – fix the consolidated levies and duties from sale of fuel. As it is nearly 47% of the price of petrol at the pump is tax. Every time either the USD or oil price goes up, so does the tax. Fix the tax at a moderate level. Imagine paying 47% tax!

Or better still abolish fuel subsidy and these obnoxious taxes at one stroke. Why levy a tax and then provide a subsidy. Let the fuel price move in step with international rates. This will help our economy grow and for the government, taxes too will grow!