Petrol/Diesel price in India - Unpopular but appropriate decision of government
Whenever petrol or diesel price is increased, there used to be animated discussions in the print, visual and social media in India.. However, when price comes down , there would be deafening silence.
Now, with the petrol / diesel price staying at high level, Modi government is being accused of being insensitive to the demand of the people to reduce the price. It is said that taxes should be reduced to reduce the price of petrol and diesel.
What is the issue?
India presently imports around 220 million tonne per annum of crude oil ,whereas India produces only around 27 million tonne of crude oil per annum. There is little possibility of significantly increasing the domestic production of crude oil.
Even as the price of diesel and petrol is at high level, the consumption of diesel / petrol has been increasing at 6 to 7% every year , necessitating the increase in import of crude oil for the production of petrol/ diesel in the petroleum refineries.
Price of crude oil in the global market is likely to increase in the coming years due to the following reasons.
1. Due to the low price of crude oil in the last several years, many crude oil exploration efforts in the world have been suspended . With the existing wells steadily and inevitably depleting, global production of crude oil is unlikely to keep pace with the increase in demand in the immediate future. Therefore, there would be price pressure on crude oil in the global market due to production constraints.
2. Major oil producing countries (OPEC) and Russia have deliberately decided to restrict the production of crude oil to prevent fall in the crude oil price in the global market.
3. While shale oil from USA can help to some extent in sustaining crude oil production to the level of need, it cannot do so over extended period ,since shale oil well life is generally only around twelve months , after which the production would reach uneconomic level, forcing tapping of the well. There are protests in U S about extending greater areas for drilling new shale wells due to environmental reasons.
Given such global scenario, with India’s import of crude oil increasing steadily and crude oil price in the global market soaring, Indian economy will suffer enormously due to the huge outflow of foreign exchange, may be to the level of 70% of the foreign exchange earned, for import of crude oil. This would be an unsustainable situation.
There is need to curtail the consumption of petrol and diesel in India to reduce the crude oil import. While the price of petrol and diesel have been remaining high, still it’s consumption has been going up in India. If the price of petrol and diesel would be brought down to meet the demand of the people, then certainly the consumption of petrol and diesel would register further increase in growth.
To reduce the dependence on import of crude oil, Modi government has been rapidly increasing the solar and wind power generation capacity. Solar power capacity was just around 1100 MW when Modi government assumed office four years back Today ,solar power capacity in India is around 23000 MW. Wind power capacity has also been substantially stepped up. Steps are being initiated to further build nuclear power capacity ,which is a clean energy. All such efforts take time to make the desired impact.
Modi government’s anxiety to keep the price of petrol and diesel at high level is appropriate , as it would prevent increase in demand and consequent increase in crude oil import.
Of course, it can be asked that upto what level domestic price of petrol and diesel would be allowed to increase. The government has to think on this and perhaps, sacrifice tax to some extent both at central and state government levels to ensure that price would not increase to the back breaking level.
There is issue in reducing the tax as it would affect the income of the government, which is under compulsive need to introduce several welfare measures and investment in infrastructure projects. Where will the money come from?
Large section of people want lower petrol and diesel price but also want introduction of several welfare measures, build up of investment in government projects and employment generation.
One cannot have the cake and eat it too.
N.S.Venkataraman more
Now, with the petrol / diesel price staying at high level, Modi government is being accused of being insensitive to the demand of the people to reduce the price. It is said that taxes should be reduced to reduce the price of petrol and diesel.
What is the issue?
India presently imports around 220 million tonne per annum of crude oil ,whereas India produces only around 27 million tonne of crude oil per annum. There is little possibility of significantly increasing the domestic production of crude oil.
Even as the price of diesel and petrol is at high level, the consumption of diesel / petrol has been increasing at 6 to 7% every year , necessitating the increase in import of crude oil for the production of petrol/ diesel in the petroleum refineries.
Price of crude oil in the global market is likely to increase in the coming years due to the following reasons.
1. Due to the low price of crude oil in the last several years, many crude oil exploration efforts in the world have been suspended . With the existing wells steadily and inevitably depleting, global production of crude oil is unlikely to keep pace with the increase in demand in the immediate future. Therefore, there would be price pressure on crude oil in the global market due to production constraints.
2. Major oil producing countries (OPEC) and Russia have deliberately decided to restrict the production of crude oil to prevent fall in the crude oil price in the global market.
3. While shale oil from USA can help to some extent in sustaining crude oil production to the level of need, it cannot do so over extended period ,since shale oil well life is generally only around twelve months , after which the production would reach uneconomic level, forcing tapping of the well. There are protests in U S about extending greater areas for drilling new shale wells due to environmental reasons.
Given such global scenario, with India’s import of crude oil increasing steadily and crude oil price in the global market soaring, Indian economy will suffer enormously due to the huge outflow of foreign exchange, may be to the level of 70% of the foreign exchange earned, for import of crude oil. This would be an unsustainable situation.
There is need to curtail the consumption of petrol and diesel in India to reduce the crude oil import. While the price of petrol and diesel have been remaining high, still it’s consumption has been going up in India. If the price of petrol and diesel would be brought down to meet the demand of the people, then certainly the consumption of petrol and diesel would register further increase in growth.
To reduce the dependence on import of crude oil, Modi government has been rapidly increasing the solar and wind power generation capacity. Solar power capacity was just around 1100 MW when Modi government assumed office four years back Today ,solar power capacity in India is around 23000 MW. Wind power capacity has also been substantially stepped up. Steps are being initiated to further build nuclear power capacity ,which is a clean energy. All such efforts take time to make the desired impact.
Modi government’s anxiety to keep the price of petrol and diesel at high level is appropriate , as it would prevent increase in demand and consequent increase in crude oil import.
Of course, it can be asked that upto what level domestic price of petrol and diesel would be allowed to increase. The government has to think on this and perhaps, sacrifice tax to some extent both at central and state government levels to ensure that price would not increase to the back breaking level.
There is issue in reducing the tax as it would affect the income of the government, which is under compulsive need to introduce several welfare measures and investment in infrastructure projects. Where will the money come from?
Large section of people want lower petrol and diesel price but also want introduction of several welfare measures, build up of investment in government projects and employment generation.
One cannot have the cake and eat it too.
N.S.Venkataraman more
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Oct 31
Battery driven motor vehicles should be produced in large scale and their prices should be drastically cut, which under no circumstances be allowed to be more than the petrol/diesel driven vehicles and some incentive for the purchasers of these vehicles should be made available. Meanwhile, intensive research should be made for improved version of battery driven vehicles, particularly in the fields of longevity & price as also improved speed of the vehicles. The government should also give top priority on large scale production of energy alternatives to mineral oils. more
Jun 10
It seems to me , there is a need to cut down import of crude. Financial stability , welfare programs and infrastructure upgrade should be on the country s top most priority. Differential price policy for goods and services use may be useful to check price level. more
Jun 10
Reason as to why petrol/diesel has deliberately been kept out of the purview of the much celebrated GST is not understood? Why no one answers this issue? more
Jun 06
My comments are very much related to the burning issue of soaring prices of petrol & diesel which one can't expect to be lowered much while prices of crude oil are on increase in the international markets and value of our currency is falling. More than 80% of our demand for petrol & diesel is met by importing these products for which a major chunk of our foreign currency reserve is spent. Under the circumstances, we urgently need to find out alternatives to petrol & diesel and electric driven vehicles could provide a very good alternative and reduce demand for petrol & diesel.
As far as the question of bringing these products under the purview of GST is concerned, though I personally am affirmative to the issue, it is presumed that the state governments are vehemently opposing the proposal fearing losing VAT on the products ranging from 25% to 32% aggregating thousands of crores of rupees for them every year. However, an answer to your queries could be given by the government itself. more
As far as the question of bringing these products under the purview of GST is concerned, though I personally am affirmative to the issue, it is presumed that the state governments are vehemently opposing the proposal fearing losing VAT on the products ranging from 25% to 32% aggregating thousands of crores of rupees for them every year. However, an answer to your queries could be given by the government itself. more
Jun 11
How the so called reasonable & affordable cost will be decided in a country where more than 50% of the citizens live in BPL who can't even dare go for these commodities even if made available at as low as Rs.25/- or less per litre! On the contrary, the reasons for high cost enumerated in the post are well defined & justifiable. more
Jun 10
It is imported commodity and highest level of tax compliance. Price must not be reduced. more
Jun 06
