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Reasons Behind the Frequent Hikes in Petrol and Diesel Prices in India

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Globally, petrol and diesel prices have reached new highs in the past few months, thanks to the ongoing Russia-Ukraine war. With oil marketing companies (OMCs) revising prices as per the rising crude oil costs, fuel prices are expected to rise further in the coming months. The rising fuel prices has not only hit vehicle owners, but also many public transport users. As a result, commuters are now being forced to shell out extra bucks to travel in cabs, local buses and other modes of public transport.

So, whether you own a two-wheeler or four-wheeler,if you are worried about the rising petrol and diesel prices, the best you can do is walk to nearby places and use economical modes of public transport, whenever possible. Also, make sure you take a comprehensive bike or car insurance policy instead of a basic one. While you can take your vehicle on the road with a basic third party car insurance policy, having a comprehensive plan that covers personal as well as third-party liabilities is a better option.In case your vehicle gets damaged in an accident, fire, theft or natural calamity, the insurance company will take care of the bills and save you from financial setbacks.

What is the reason behind this price hike?

In March 2022, India witnessed a sudden hike in fuel prices after a gap of about four months. This was mainly due to a notable increase in crude oil prices in the major oil-producing nations in the world. India imports about 85% of crude oil from different countries. As per the latest reports, the price of Brent crude increased by about 45% during the last fuel price revision by oil marketing companies (OMCs); from $81.6 per barrel, the price increased to $118 per barrel. Also, the ongoing Russia-Ukraine war and destruction of the oil and gas infrastructure in Saudi Arabia have disrupted crude oil supplies in the country. These factors are also responsible for a sudden increase in crude oil prices.

Are there any short-term reasons?

Oil marketing companies in India kept oil prices unchangedfor more than four months, i.e., from November 4,2021 to March 21, 2022, ahead of the assembly elections in Punjab, Uttar Pradesh, Goa, Uttarakhand and Manipur. However, soon after the elections, there was a sudden surge in fuel prices across the country. Since crude oil prices are increasing of late, the prices of petrol and diesel are likely toshoot up further in the coming days.

What are the long-term reasons?

In the financial year 2021-22, the government of India collected gross tax revenue of INR27.07 trillion, which is around 34% and INR 5 lakh crores more than the estimated amount.High tax on petrol and diesel is one of the main reasons for this notable increase in the central government tax revenue. Since the international crude oil rates have increased in the past few years, the central government is levying higher taxes on petrol and diesel.However, when the international crude oil rates fall, the government rarely reduces the fuel prices. While this has helped the government to collect huge tax revenues, common people are being forced to bear the brunt of rising fuel prices.

How is this related to the current price hike?

The higher rate of central and state taxes is one of the main reasons for the rise in fuel prices in the country. There have been instances in the past when fuel prices were on the higher side, but petrol and diesel were quite affordable for many. For example, in the first half of 2014, Brentcrude oil price averaged at about $106 per barrel. However, both petrol and diesel were priced quite economically at around INR 47 per litre and INR 45 per litre respectively.And when the crude oil prices fell in the second half of 2014, the central government increased the taxes instead of reducing the fuel prices. The central government uses the same formula every time international crude oil prices fall. There have been times when crude oil prices fell by a notable percentage. However, over the years, consumers rarely got any relief from the rising petrol and diesel prices.

What role did the COVID-19 pandemic play in the price hike?

During the COVID-19 pandemic in 2020 and 2021, economic activity came to a near standstill in India and other countries around the world. Hence, the government was forced to increase the excise duty on fuel by a notable percentage. As per reports, excise duty on petrol and diesel was increased by 43% and 68.8% respectively during the pandemic, i.e., between March 2020 to February 2021. Before the lockdown, on March 14, 2020, the excise duty on petrol and diesel was INR 22.98 and INR 18.83 per litre, respectively. However, petrol price increased to INR 32.90 per litre on February 2, 2021, while diesel price was raised to INR 31.80 per litre.

For more insights on maximizing your fuel efficiency and reducing fuel costs, explore comprehensive guide on the Best Tips to Achieve Fuel Efficiency and Save Gas Money.

Conclusion

Although petrol and diesel prices are on the higher side today, some analysts believe that the prices are set to fall in the coming years. The central government may reduce the excise dutyon fuel as they are still above the pre-pandemic levels. If this is done, it will be a welcome relief for all, especially for those who commute every day for work. In the meantime, you can save fuel by driving smartly and opting for other economical modes of transport, whenever possible. Also, keep a good COMPREHENSIVE CAR INSURANCE policy handy to save yourself from additional expenses and third-party liabilities.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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