Petrol and diesel have become dearer as petroleum companies have increased their prices owing to, in their opinion, the increase in international crude oil price and a depreciating Indian rupee. Since the UPA government removed Administered Price Mechanism (APM) for fuel pricing, petroleum companies have a near free reign in deciding the price of petrol and diesel.
Though in theory the prices would be decided on the basis of the market forces of demand and supply, our practical experience suggests that the companies are not always inclined towards passing on to the end customers the gains they receive as a result of decreased crude oil prices, but they always show great alacrity in raising the prices when there is an increase in global crude oil price. Moreover, only a naive observer will assume that the central government has no influence on the petroleum companies vis-a-vis their power in deciding fuel prices in India. Therefore the government can hardly put the whole blame on the petroleum companies in a bid to save its face when there are protests against fuel price hike.
In the last two weeks fuel prices were increased twice resulting in an aggregate increase of Rs.7.91 for petrol and Rs.5.69 for diesel. When asked about the fuel price hike government managers in channel debates are pointing out that petrol prices were decreased when there was a major decrease in global crude oil prices and they complained that people didn’t appreciate them when that happened. However, even a cursory glance at data for the past one year will show that when crude oil prices were reduced up to 54% (prices have since increased), fuel prices in India were reduced only up to 10%, which would mean that the advantage of decreased crude oil prices were not passed on to the end customers but were used to fill the coffers of the petroleum companies.
Now let us see some calculations to find out how the petroleum companies, with the connivance of central government, fool laymen and increase their profits. On 16 May 2014 when international crude oil price was $109.75 per barrel, petrol price and diesel price in India were respectively Rs.71.41/litre and Rs.56.71/litre (Delhi price). When today, exactly one later on 16 May 2015, international crude oil price is $66.57 per barrel, petrol price and diesel price in India are respectively Rs.64.24/litre and Rs.52.28/litre (Delhi price). Therefore, when international crude oil price has reduced by 39.34%, petrol price and diesel price have reduced only by 10.04% and 7.81% respectively. If the companies were to pass on the whole benefit of reduced global price of crude oil to the common man, they should have sold petrol for Rs.43.31/litre and diesel for Rs.34.40/litre (Delhi price).
Modi government also can’t excuse itself from the blame of increase in fuel prices. When the global crude oil price decreased the government had increased the excise duty to claim a part of the benefit that lay Indians had received. Now that the crude oil price has increased the government appears in no mood to reduce that increased excise duty to lessen the burden on the people. Modi government came to power riding on the huge wave of resentment against the UPA government largely due to its inability to control price rise. But once in power, Modi government is treading the same path of economic policies that UPA had travelled. Decrease in global crude oil prices had eased out inflation in India and the Modi government was boasting about the said reduction. Now with this increased fuel prices inflation is all set to come back.
Weakening rupee has been cited as another reason for the rise in fuel prices in India. When pre-poll surveys had predicted the probability of Narendra Modi assuming the role of Prime Minister of India, some financial experts had predicted about rupee growing stronger and even reaching 40 per dollar (this view was even endorsed by lifestyle guru Sri Sri Ravi Shankar). But as of now no such positive movements are seen arriving.
A perusal of the balance sheets of major public sector oil companies in India, which are available in their websites, will show that the loss they claim to be making because of volatility of crude oil prices is a farce. They are by no means incurring huge losses but only a reduction in profit volumes. When the government remains silent on the face of such blatant deception from the oil companies it becomes clear that it does so for the benefit of private oil companies like Reliance and Essar and for the public sector oil companies.
Ache Din was supposed to come to Indians once Narendra Modi became the PM, or so he and his supporters had claimed. But till now it doesn’t appear to come even from the very distant horizon. Any dream of ache din, which those poor people who had voted for Narendra Modi had in their minds during voting, is in grave danger of being sunk by the avalanche of costlier petrol and diesel.
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