Fuel Price- A pragmatic approach.

Enough is said, read, discussed and argued on all aspects of ever escalating fuel price in India and, despite of all such claims and blames, we all know that the simple reason for the same is the 58% tax that are being levied by the Governments, Central as well as States, at various stages of oil production, distribution and sale. It is also a fact that the sharp spikes in oil prices had made deep holes in the pockets of the ordinary citizens of India, who are fighting a battle with pandemic. There are many justifications for the mounting price of fuel such as (1) Dependency of the nation on oil producing countries for importing the fuel for its need (2) Heavy transportation cost to distribute the fuel across the country (3) Dependency of the Government in tax revenues (4) Permitting the oil companies to have competitive pricing (5) Deregulation on the pricing mechanism of the oil companies (6) Withdrawal of the subsidies on the fuel price (7) Non allocation of Petrol and Diesel under GST Act etc.


The most prominent among the above arguments are the non-tagging of the fuel price under the GST Act and consequent two stage taxation by Central Government and State Governments. Anyone with a very simple mathematical mind can easily calculate the benefit of bringing the Fuel prices under GST and establish that the prices can come down to Rs. 50/- per liter (approximately) from the present Rs. 100/- per liter. Though the Central Government had expressed its interest to bring the fuel prices under the GST regime, many of the State Governments had expressed its strong sense of objection in doing so. The major reason behind their objection is the potential revenue loss that can happen to the States while implementing the low tax rates on fuel. There is clearly a justification for the said objections too, as major source of revenue of the States are mainly from taxes generated from sale of Petrol/ Diesel. If there is a sharp decline in the said revenue, the Governments will face huge financial crunch and will struggle to meet its obligations towards its citizens. Similarly, Central Government will also get cash strapped and cannot afford to fund the mega social welfare schemes and will tussle to do infrastructure push which is much needed for creating a better India. India, being a welfare State, cannot afford to pause or reduce its welfare schemes and also cannot go back from its commitment towards building the heavy infrastructural requirement of developing India.


Another argument cited as a reason for the spiraling up oil price is the removal of the subsidies on it and enabling the competitive price discovery mechanism among oil companies. Subsidies are always a burden on the Government as it eats up the major revenue of the Government, which should have been better utilized for the development of the nation. However, steps taken by the Government to unleash the oil companies to enable them to fix the oil prices in accordance with the price of crude in international markets had evidently backfired. Though the oil companies are taking immediate steps to sleeve up the prices in accordance with the increasing crude price, the same is not being reciprocated when the prices are on its lower side.


Common man- A prey and scapegoat of consumerism, liberalization and inflation illusion.

When the economic walls of the nation had opened up for free trade, knowingly or unknowingly, India had turned into a huge consumer market where anything and everything can be sold easily. As part of the liberalized economy, Indian roads had witnessed a great pomp and show by German, Japan and American made sophisticated vehicles, which had drooled the Indian customers who had thus far seen only Maruti, Premier Padmini and Ambassador cars. During the pre-liberalization era, the banks were hesitant to extend loan to a person who does not have strong financial support. Due to that reason, it was not very easy for a common man to purchase a vehicle. As it was not affordable to own a vehicle, he had depended on public transportation facilities to commute. The Banks, as part of liberalized lending policy of the Reserve Bank of India, had pumped huge money into the market in the form of easy loans and schemes and tempted the common man to purchase the vehicles, which was not otherwise affordable to him. Due to the illusion created by the inflation, the salaries and wages of the common man had also shown an increment in coming years but the expenses also climbed up parallelly. But we failed to understand the effect of inflation on us while purchasing the expensive products which requires regular maintenance.


As per the information published by Central Government in the official gazette, the Cost Inflation Index (CII) for the year 2021-22 is 317 when compared to the CII of 100 during the financial year 2000-2001. To put it simply, the cost of living had inflated by 3.17 times within a span of 20 years. Let me explain this part clearly.


If a person was spending Rs. 10000/- to meet his household expenses during the year 2001, he has to spend Rs 31700/- for affording same quantity of household items during the year 2021-22. On that logic, the petrol price of Rs. 28.44/- during the year 2001 had inflated to Rs. 90.16/- by the year 2021-22 due to the effect of inflation. If we adjust the Cost of Inflation to Consumer price index (Cost Inflation Index = 75% of the average rise in the Consumer Price Index* (urban) for the immediately preceding year), then the price shall be 2.37 times of the price in 2001. In that case, the price of petrol s