Petrol, diesel price rise saga explained

The rise in petrol and diesel prices has been making news for the last week or so. Change in fuel price indeed has far reaching effects as its impact ranges from daily budget to macroeconomics like inflation numbers.

Here is a roundup of what is happening and why it matters.

How much have the prices risen?
On September 12, petrol cost Rs 79.48 per litre in Mumbai and Rs 70.38 per litre in Delhi while diesel was priced at Rs 62.37 per litre in Mumbai and Rs 58.72 per litre in Delhi. The price of petrol in Mumbai is highest since August 2014 while diesel prices reached their peak since August 2014 in Kolkata and Chennai. Since July 1, petrol has climbed Rs 5.18 per litre in Mumbai, and diesel by Rs 5.75 per litre in Kolkata, and Rs 5.71 per litre in Chennai. A fact check confirmed that the prices have consistently gone north across all major cities in the last few months.

The crude connection?
It is common knowledge that the price of fuel in India depends upon the global crude oil prices and fluctuations in the same is expected to reflect in the amount of money you pay at the petrol pump. The uproar regarding the prices gained a few decibels when it was discovered that crude oil prices have declined in the last three years. On May 26, 2014, when the current government took over, a barrel of crude oil cost Rs 6,330.65 which by September 11,2017 had almost halved to Rs 3,368.39. However, the last week saw a sharp rise in international rates driven by the hurricane-induced shutdown of refining capacity in the US.

Has the rise come as a shocker?
To state the fact, fuel prices have been rising for a while now but it went largely unnoticed after the daily revision of prices was put in place from June 16. Earlier the prices were revised on the 1st and 16th of every month. "Daily price revisions of Petrol and Diesel will make the retail prices more reflective of the current market conditions, minimising the volatility in the RSP (Retail Selling Prices) of Petrol and Diesel," the Indian Oil Corporation had said in a statement ahead of rolling out the new system.

The government had backed the move with the motive of bringing transparency in the pricing process. Right since the daily revision kicked off, the prices have been increasing in the range of 2 paise to 7 paise almost every day. In the days of fortnightly revision of prices, a significant jump or slip used to make news but most of the pundits were unable to detect the gradual increase after the daily revision started.

How has it affected the people?
The hike has larger consequences than the obvious pinch in consumers' pocket. Analysts opine that fuel prices have contributed in a big way towards spike in India's August wholesale inflation to a four-month high of 3.24 per cent. The three-year high fuel prices sent the fuel inflation soaring as it rose by 10 per cent in August.

What is the government saying?
Oil Minister Dharmendra Pradhan has quashed any chance of going back on the daily revision of fuel prices. He has said that the rise is 'temporary' and the matter has been selectively highlighted. Apart from the effect of hurricane Irma which caused US refineries to shut down the government has also owed the price hike to international crude prices have increased by 13 per cent from July 1 to September 13 ($47.86 to $53.06).

The government has also blamed various states for increasing VAT (Value Added Tax). It has put up examples of states like Kerala where VAT has gone up from 26 per cent to 34 per cent and Delhi where it has gone from 20 per cent to 27 per cent on petrol. Subsequently, the oil minister has made a case for including petroleum products in the GST (Goods and Services Tax). Bolstering its stand further, the government has claimed that 42 per cent of excise collections from petro products are transferred to state governments for infrastructure and welfare programmes.

What next?
With the oil minister urging the GST Council to look into the modalities of inducting petroleum products into the GST ambit, the ball is in the court of Finance Minister Arun Jaitley and his state counterparts. Meanwhile, a report has emerged that states have agreed to cap VAT on natural gas at 5 per cent and lower it on other petroleum products such as petrol and diesel used by the manufacturing sector as an input.