Hello Readers! 

At the start of this month February, we got the Union Budget of our country for the fiscal year 2021-22, announced by our Finance Minister Nirmala Sitharaman. There were a number of provisions in the budget. Regarding the diesel and petrol prices in the budget, FM announced, a hike in agriculture cess by 2.5 percent on Petrol and agriculture cess increased by 4 percent on diesel. They also had a word that this hike won’t affect the buyer’s pocket, but the petrol and diesel prices trending since last few days is narrating a different story. Let see what is it!

In the last few days, a pocket of the common people of the country has been suffering due to the consecutive rise in the petrol prices. At present, the share of imports in the country’s overall crude requirement comes to 89 percent while it is pegged at around 53 percent for gas. This has once again made India vulnerable to volatility in the international crude market.

Here are some pointers that will make you clear about the reason behind the hike in fuel prices.

Reasons Behind The Rise In Petrol And Diesel Prices!

Two major reasons that have been considered for the hike of petrol prices, first the rise in international crude prices and hike in central and state taxes. You might be aware that, during the pandemic, the central government raised the excise duty on petrol to Rs 32.98 a liter from Rs 19.98 a liter, and excise duty on petrol was raised from Rs 31.83 a liter from Rs 15.83 a liter.

Not only this, some state governments too increased the Value Added Tax (VAT) on fuel during the same period.

Reason For The Rise In Crude Prices!

In the early days of the COVID-19 pandemic, the up-down trend was experienced in the prices of crude, this too affected the production of crude. In February 2020, the price of international benchmark Brent crude was seen at $65.09 a barrel that went down to its lowest in April month of the same year. The global demand for crude dropped down and the price of crude went to $19 a barrel in April 2020.

In order to push the crude prices up amid lower demand, the Organization of Petroleum Exporting Countries (OPEC) and allies, including Russia, had cut oil production by 9.7 million barrels per day (BPD) in May 2020.

Further Saudi Arabia too went down cutting the output by 1 million barrels per day through February and March this year that is in 2021. This cut down in the production unit has been taken as a major reason behind this hike in the prices of crude.

However, big crude consumer countries like India have appealed the oil producers to ease the cut on crude oil production, so that price-sensitive Indian consumers could get some relief on the fuel prices.

What Are The Major Components Of Fuel Pricing In India?

Fuel prices include various factors, like freight charges, dealer commission, central excise duty, and VAT taxes.

As per the report, 60 percent of the petrol price is contributed by the taxes and 55 percent of the diesel price is contributed by the in the capital city of the country. The petrol price charged from the dealers in Delhi, including the freight charges, comes to only Rs 32.10 a liter, which means that the duties and dealer commissions contribute the remaining part.

The price charged by the dealers on diesel works out to around Rs 33.71 a liter. Today the petrol price in Delhi got hiked by 34 paise from Rs 89.88 a liter, while diesel was increased by 32 paise to Rs 80.27 a liter. Out of this, dealer commissions contribute only Rs 3.68 a liter on petrol and Rs 2.51 a liter on diesel.

Petrol Prices In Neighboring Countries!

In January 2021, Member of Parliament, Subramaniam Swami mocked the Indian government by pointing out the big differences in the petrol price of India compared to its neighboring countries. If you remember his words were insulting but a fact. He stated that ‘petrol price in Ram’s India was higher than the price in Sita’s Nepal and Ravan’s Lanka’.  

As per the data of GlobalPetrolPrices.com, the petrol prices in India were more than every one of its neighboring countries, even Pakistan and Bangladesh are way below Indian rates. On February 15, the petrol price in Sri Lanka stood at Rs 60.29 a liter, Nepal was Rs 69.01, Pakistan Rs 51.12, and Bangladesh Rs 76.43 a liter. Similarly, the diesel price in Sri Lanka was Rs 38.91, Nepal at Rs 58.32, Pakistan at Rs 53.02, and Bangladesh at Rs 55.78 a liter.  

Petroleum minister, Dharmendra Pradhan in his statements, clearing the fact behind the high prices of petrol in India than neighboring countries stated that “Generally, the prices of petroleum products in the country are higher/lower than other countries due to various factors, including the prevailing tax regime and subsidy compensations by the respective countries”.

Well, petrol prices are consecutively rising like the sky is the only limit and they are more focused on reaching that. However, it has badly affected the pocket of common people. Now It will be interesting to watch how the central government takes this issue, and what step does it take to relieve the most prominent population of this country, the common people!

Keep reading for more updates on Mutual Fund Investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).