Fuel Price Hike

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July 31, 2011

FUEL PRICE HIKEBad economics, worse politicsBy Adhitya Srinivasan

A few weeks ago, Union Minister for Petroleum and Natural Gas, Jaipal Reddy had announced that fuelprices would be increased.Subsequently diesel price was increased by Rs 3; kerosene by Rs 2 and LPG byRs 50. The Petroleum Minister supported this policy on grounds of continuing the policy on deregulation offuel prices, saving the oil companies from huge losses and reducing the governments subsidy burden. Thiswas the first time that the government had deregulated the prices of diesel and kerosene. Fuel prices havealways been a sensitive issue in Indian politics and when managed poorly, it has invariably invited a fair dealof criticism.

During the course of this announcement, Jaipal Reddy also hoped that the states would reduce taxes on fuelproducts so that the consumers would have some relief. Shortly thereafter, the Union Finance Minister,Pranab Mukherjee wrote to the Chief Ministers of all states, urging them to reduce levies on diesel, keroseneand LPG. Most Congress-ruled states and some BJP-ruled states such as Uttarakhand and HimachalPradesh reduced VAT on fuel. Some other states such as Madhya Pradesh have not reduced VAT on fuel.This is the point at which politics took over. The Congress protested against BJP governments which had

not reduced VAT and accused the BJP of neglecting the woes of the aam admi.

The Congress-led UPA has accomplished the unique feat of messing up both the politics and economics offuel prices. In fact, if one were to take the following analysis to its logical conclusion, the economic aptitudeof this government becomes questionable. At another level, the policy announcement coupled with theFinance Ministers written request and the irrational protests by the Congress are attempts to clamp down onthe federal structure that was envisaged by the authors of the Constitution. The State of Madhya Pradesh,currently ruled by the BJP, is the perfect illustration of all these effects.

The brand of federalism enshrined in the Constitution leans heavily in favour of the Centre. The Centre isempowered to collect tax revenue in a host of areas including income, corporate profits and services. On theother hand, the States ability to collect tax revenue is limited to a few areas such as agricultural income andsale of goods. Consequently, the states become dependent on the Centre for finances. In a purely equitablesystem, the Centre would release sufficient funds to the states. But party politics often scuttles every notionof equitable and just distribution of finances to the states.

The Centres directive to reduce VAT on fuel products is in the nature of an indirect tax on the states. Just asproducers pass on the tax burden on to their consumers, so too is the Centre passing the burden ofproviding relief to the common man to the States after having caused the problem! The Centre is thus ableto protect its revenues but it expects the states to bear the brunt of the fuel price hike by lowering its taxes.This is the worst kind of hypocrisy.

This hypocrisy turns into downright immorality when one considers the facts and figures. Out of the total taxrevenue for Madhya Pradesh for the year 2011-12, the States own taxes amount to 23,118 crore rupeeswhereas theStates share in Central taxes is only 17,029 crore rupees. For the year 2010-2011, the taxrevenue stood at 18,670 crore rupees (States taxes) and 11,047 crore rupees (States share in Centraltaxes). The figures were 17,273 crore rupees and 11,077 crore rupees for 2009-10 and 13,614 crore rupeesand 10,767 crore rupees for 2008-09. In other words, the major source of revenue for the State is therevenue generated by its own taxes. The Centre has consistently made a paltry contribution. Despite this,the Centre expects the states to reduce VAT and thereby lower its ability to generate revenues!

There are at least two possible fallouts of reducing VAT. Firstly, the State government, in view of lowerrevenues, is unable to fully implement its welfare programmes. For instance, in Madhya Pradesh, a numberof important programmes such as the Ladli Laxmi Yojana, Kanyadhan Yojana and Janani Suraksha Yojnahave caught the imagination of the people. These programmes cannot be implemented if States revenuesdecrease. Secondly, in order to make up for the depreciated revenues, the State government will increasetaxes on other commodities. Either way, the common man will suffer. The UPA in its short-sightednessmight have believed that reducing VAT would help the common man. On the contrary, it will compound hisproblems manifold.


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None of this would have arisen had it not been for the UPA governments decision to hike fuel prices. So itbecomes important to evaluate the need for such a policy. Decontrolling fuel price might be a desirablepolicy. But for a government that claims competence in economic affairs, the timing of the fuel price hikewas terrible. There is no sense in hiking fuel prices in an inflationary economy. Diesel is a universalintermediate and a hike in diesel price would trigger a rise in the prices of other commodities. Perhaps, thegovernment could have increased fuel prices by small amounts on a periodic basis as opposed to knee-jerkhikes so as to give consumers some leeway for management.

But does this really solve the problem? In a 2006 an article written in The New Indian Express, (Petrol at Rs.30 a litre? Possible, but ) S. Gurumurthy identifies an incorrect exchange-rate management policy asbeing responsible for the high fuel prices in India. He argues that despite the appreciation of the rupee inreal terms, the Finance Ministry and the RBI have constantly intervened to keep the value of the rupeebelow its real value. Crude oil is imported from abroad in dollars but is sold in India by way of refined petroland diesel in rupees. This means that if the rupee were allowed to reflect its real value, the import cost ofcrude would be significantly lower and consequently the fuel prices in India would be lower. This would notonly bring genuine relief to the common man but also allow the government to fully decontrol fuel prices.Perhaps, the government should learn to think differently

FUEL PRICE HIKEBad economics, worse politicsBy Adhitya Srinivasan

A few weeks ago, Union Minister for Petroleum and Natural Gas, Jaipal Reddy had announced that fuelprices would be increased.Subsequently diesel price was increased by Rs 3; kerosene by Rs 2 and LPG byRs 50. The Petroleum Minister supported this policy on grounds of continuing the policy on deregulation offuel prices, saving the oil companies from huge losses and reducing the governments subsidy burden. Thiswas the first time that the government had deregulated the prices of diesel and kerosene. Fuel prices havealways been a sensitive issue in Indian politics and when managed poorly, it has invariably invited a fair dealof criticism.

During the course of this announcement, Jaipal Reddy also hoped that the states would reduce taxes on fuelproducts so that the consumers would have some relief. Shortly thereafter, the Union Finance Minister,Pranab Mukherjee wrote to the Chief Ministers of all states, urging them to reduce levies on diesel, keroseneand LPG. Most Congress-ruled states and some BJP-ruled states such as Uttarakhand and HimachalPradesh reduced VAT on fuel. Some other states such as Madhya Pradesh have not reduced VAT on fuel.

This is the point at which politics took over. The Congress protested against BJP governments which hadnot reduced VAT and accused the BJP of neglecting the woes of the aam admi.

The Congress-led UPA has accomplished the unique feat of messing up both the politics and economics offuel prices. In fact, if one were to take the following analysis to its logical conclusion, the economic aptitudeof this government becomes questionable. At another level, the policy announcement coupled with theFinance Ministers written request and the irrational protests by the Congress are attempts to clamp down onthe federal structure that was envisaged by the authors of the Constitution. The State of Madhya Pradesh,currently ruled by the BJP, is the perfect illustration of all these effects.

The brand of federalism enshrined in the Constitution leans heavily in favour of the Centre. The Centre isempowered to collect tax revenue in a host of areas including income, corporate profits and services. On theother hand, the States ability to collect tax revenue is limited to a few areas such as agricultural income andsale of goods. Consequently, the states become dependent on the Centre for finances. In a purely equitablesystem, the Centre would release sufficient funds to the states. But party politics often scuttles every notion

of equitable and just distribution of finances to the states.

The Centres directive to reduce VAT on fuel products is in the nature of an indirect tax on the states. Just asproducers pass on the tax burden on to their consumers, so too is the Centre passing the burden ofproviding relief to the common man to the States after having caused the problem! The Centre is thus ableto protect its revenues but it expects the states to bear the brunt of the fuel price hike by lowering its taxes.This is the worst kind of hypocrisy.

This hypocrisy turns into downright immorality when one considers the facts and figures. Out of the total taxrevenue for Madhya Pradesh for the year 2011-12, the States own taxes amount to 23,118 crore rupeeswhereas theStates share in Central taxes is only 17,029 crore rupees. For the year 2010-2011, the tax


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revenue stood at 18,670 crore rupees (States taxes) and 11,047 crore rupees (States share in Centraltaxes). The figures were 17,273 crore rupees and 11,077 crore rupees for 2009-10 and 13,614 crore rupeesand 10,767 crore rupees for 2008-09. In other words, the major source of revenue for the State is therevenue generated by its own taxes. The Centre has consistently made a paltry contribution. Despite this,the Centre expects the states to reduce VAT and thereby lower its ability to generate revenues!

There are at least two possible fallouts of reducing VAT. Firstly, the State government, in view of lower

revenues, is unable to fully implement its welfare programmes. For instance, in Madhya Pradesh, a numberof important programmes such as the Ladli Laxmi Yojana, Kanyadhan Yojana and Janani Suraksha Yojnahave caught the imagination of the people. These programmes cannot be implemented if States revenuesdecrease. Secondly, in order to make up for the depreciated revenues, the State government will increasetaxes on other commodities. Either way, the common man will suffer. The UPA in its short-sightednessmight have believed that reducing VAT would help the common man. On the contrary, it will compound hisproblems manifold.

None of this would have arisen had it not been for the UPA governments decision to hike fuel prices. So itbecomes important to evaluate the need for such a policy. Decontrolling fuel price might be a desirablepolicy. But for a government that claims competence in economic affairs, the timing of the fuel price hikewas terrible. There is no sense in hiking fuel prices in an inflationary economy. Diesel is a universalintermediate and a hike in diesel price would trigger a rise in the prices of other commodities. Perhaps, thegovernment could have increased fuel prices by small amounts on a periodic basis as opposed to knee-jerkhikes so as to give consumers some leeway for management.

But does this really solve the problem? In a 2006 an article written in The New Indian Express, (Petrol at Rs.30 a litre? Possible, but ) S. Gurumurthy identifies an incorrect exchange-rate management policy asbeing responsible for the high fuel prices in India. He argues that despite the appreciation of the rupee inreal terms, the Finance Ministry and the RBI have constantly intervened to keep the value of the rupeebelow its real value. Crude oil is imported from abroad in dollars but is sold in India by way of refined petroland diesel in rupees. This means that if the rupee were allowed to reflect its real value, the import cost ofcrude would be significantly lower and consequently the fuel prices in India would be lower. This would notonly bring genuine relief to the common man but also allow the government to fully decontrol fuel prices.Perhaps, the government should learn to think differently

ANALYSIS - India to fill Iransupply gap with Saudi, Iraqioil

By Nidhi Verma

NEW DELHI (Reuters) - India's immediate strategy to deal with the loss of crude

from Iran in August is to buy more from Saudi Arabia and Iraq, while inventories and

plant maintenance give refiners breathing space as they seek to establish new

supply lines.

Iran has cut supply as it tries to put pressure on Indian refiners to settle $5 billion in

debt for oil supplied, and to find a way to pay for future shipments.

The halt has given regional rival and U.S. ally Saudi Arabia an opportunity to grab a

bigger share of the market in Asia's third-largest oil consumer. If Saudi Arabia fills

the gap, tension on oil policy between Riyadh and Tehran could worsen.

"For meeting immediate needs and even longer term, Saudi Arabia would be the

main source," said Paul Tossetti, senior advisor for oil markets at PFC Energy.


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"They have offered to supply extra crude to Asian refiners... Looking beyond 2011,

Iraq production should see a major increase in late 2012 and that would be another

opportunity."

Iran-led opposition defeated a Saudi proposal for a coordinated supply rise at an

OPEC meeting in June. Saudi Arabia said it would boost supply anyway, a move

Iran has criticised.Iran has cut sales of 400,000 barrels per day (bpd) of crude to India, near 12 percent

of the nation's demand of 3.46 million bpd, because New Delhi has failed to find a

way around U.S. sanctions that make paying Tehran for oil difficult.

Indian refiners Bharat Petroleum, Hindustan Petroleum and Essar have contacted

state oil firm Saudi Aramco to secure supplies to plug the gap in supply from Iran, an

Aramco source said on Wednesday.

Additional cargoes from Kuwait, the United Arab Emirates and possibly further afield,

as well as inventories held by refiners in India should prevent any supply squeeze,

analysts said.

"I don't think that the availability of crude is an issue." said Sushant Gupta, ananalyst with Wood Mackenzie. "There will be alternatives from the Middle East and

West Africa. They have the flexibility to reschedule crude cargoes and have some

inventories as well."

Most Indian refiners can process regional Middle East and West African grades, said

Gupta. MRPL, HPCL, IOC, BPCL and Essar between them buy already about two-

thirds of their oil from the Middle East.

Mangalore Refinery and Petrochemicals Ltd., Iran's biggest Indian buyer with around

150,000 bpd, was already in talks to boost supply from Saudi Arabia and Gulf ally

the UAE.

The company had started looking for alternative suppliers even before Iran haltedshipments to India this week as the dispute that rose in December over payment

between New Delhi and Iran dragged on. MPRL struck its first ever supply deal with

Kuwait earlier this year to buy 20,000 bpd.

HPCL plans to open talks to boost supply from Saudi Arabia, Kuwait, the UAE and

Iraq, K. Murali, the company's head of refining, said on Wednesday.

Essar, too, has been busy bringing in supplies from other sources. It raised oil

imports from Iraq five fold in the first six months of the year and from the UAE by

about 70 percent, according to refining data obtained by Reuters.

India and Iran have struggled since December to find ways for New Delhi to pay for

imports, after India's Reserve Bank of India stopped payments through the AsianClearing Union (ACU) mechanism. There is no ban against buying Iranian crude, but

sanctions have made financing the deals difficult.

The RBI's move won praise from Washington and came close on the heels of a visit

to India by U.S. President Barack Obama last year. Obama has endorsed India's bid

for a permanent seat on the U.N. Security Council.

REFINERY MAINTENANCE


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Indian refiners have some breathing space to seek more oil supply as they

undertake planned maintenance at plants.

Essar, Iran's second-largest buyer in India, plans to shut its 280,000 bpd Vadinar

refinery in September. Indian Oil Corp plans to take down its 160,000 bpd Mathura

plant in August, when MPRL will also shut a crude unit at its sole refinery.

That should limit any need for Indian refiners to seek prompt cargoes."I don't think there will be an immediate need to tap spot markets," an Asian oil

trader said.

Indian refineries on average keep crude stocks equivalent to about 10 days'

throughput, an oil ministry source said. Ships en route to India at any time hold about

another 8-10 days of refinery needs, the source added. Refineries also have around

30 days of stocks of oil products such as diesel and gasoline stocks to cushion any

supply disruption, he said.

Refiners could pool import needs together to hire the largest crude carriers to bring

oil shipments, he said.

LATIN AMERICAIn the longer term, India's smaller refiners could follow the trail blazed by Reliance

Industries in Latin America.

Reliance, which runs the world's biggest refining complex, raised imports from

mainly Venezuela and Colombia after it stopped buying from Iran in 2010, under

U.S. pressure. Brazil, too, is a potential source of future supplies as it ramps up

output from its massive deep sea reserves.

Indian Oil is considering importing oil from Africa and South America for its 300,000

bpd Paradip refinery in eastern India, due to start up next year. MRPL plans to lift

110,000 bpd from Venezuela by 2017. Selling to India fits into Venezuela's strategy

to divert cargoes from the United States."There is growing production from Latin America and in some cases like Venezuela

they want to divert supply away from the U.S. - that's a political decision," said Victor

Shum, an analyst at Purvin and Gertz.

Reaching out to Latin America even though freight costs could add to expenses for

refiners that already incur billion of dollars of losses selling fuel at government

controlled prices highlights the desire of India's refiners to diversify supply.

There are other challenges aside from distance for India in switching to Latin

American grades. Only the country's newer and more complex refineries have the

units needed to refine the oil.

"Much of the Latin American oil is lower quality - heavy and with high sulphur. But asIndian refiners become more sophisticated with installation of crackers and cokers,

more of this oil can be refined," said Tossetti.

(Reporting by Nidhi Verma; Editing by Simon Webb and Manash Goswami)


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A worker fills a car with fuel at a petrol station in New Delhi June 4, 2008.Credit: Reuters/B Mathur/FilesFri Jul 22, 2011 10:46am IST

-- Clyde Russell is a Reuters market analyst. The viewsexpressed are his own.--

By Clyde Russell

(Reuters) - The market appears quite relaxed about the escalating dispute between Indiaand Iran over payment for oil supplies, but it has wider implications and may yet disruptAsian crude markets.

For now there seems to be little concern that Iran will stop shipping 400,000 barrels a day ofoil to India next month, the view being that Saudi Arabia and other Gulf suppliers can take upthe slack.

That may well be the case in the short term, especially since some Indian refiners areundergoing maintenance in August anyway, but the longer-term picture of how India willreplace 12 percent of its crude supplies isn't so clear.

India hasn't paid Iran for oil since December after the Reserve Bank of India halted a

clearing mechanism under U.S. pressure to crack down on doing business with Iran.

Already the Iranians are owed $5 billion, which must be hurting their struggling fiscalsituation, and they finally put their foot down and said no more.

This raises some issues for both the crude oil market and the wider geopolitical situation inthe Middle East and Asia.


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First, the market issues. While the focus has been on how India will replace its Iraniansupplies, the question should also be asked, what are the Iranians going to do with theirextra oil?

Oil Minister S. Jaipal Reddy says his country has a back-up plan to secure supplies.

The problem is he didn't reveal what this was and Reddy wouldn't be the first politician to be

economical with the truth if he thought it was in his, and India's, interests.

The most logical plan is for the Indians to buy their crude from the Saudis and other Gulfproducers such as Kuwait and the United Arab Emirates.

That's all well and good, but it does tighten the supply of those crudes by 400,000 barrels aday.

The Saudis are believed to be pumping more oil, perhaps as much as 10 million barrels aday, some 25 percent above their Organization of the Petroleum Exporting Countries targetof 8.05 million.

So long as the Saudis are producing more, India can probably get the supplies it needs, butit's also likely that the Saudis, knowing the demand is there, will see little need to lower

prices.

On the other hand, the Iranians now have to try and sell the oil to other buyers, and that willpresent a few problems.

Not all Asian refiners can process their heavier grades, and some that can, such as Japan,won't buy because of the U.S. pressure.

That leaves China as the default buyer, with perhaps some of the slack being sent toSingapore, whose refiners can process around 1.5 million barrels a day.

But the Chinese have shown they are price-sensitive, and if they know there is a certain levelof distress in Iran, they are likely to push for big discounts when buying crude.

Of course, the Iranians could put some of their output into floating storage in the hope atighter market drives prices higher, but given their budget is weighed down by subsidypayments and the economy is still dealing with inflation above 10 percent, they are likely tobe seeking immediate cash.

This may result in a tug-of-war in crude markets as the Saudis supply more oil at current highprices and the Iranians discount to find a new home for 11 percent of their output.

On the political front, the India payment issue may well raise the temperature between SaudiArabia and Iran.

The surest way for the Saudis to show their displeasure at the Iranian-led move at the JuneOPEC meeting to keep output quotas unchanged is to take some of the Iran's market share.

The Saudis, no doubt with U.S. encouragement, may well make it harder for the Iranians to

shift cargoes.

In fact, the United States may well be pleased with what's happening, the Indians seems tobe OK with their oil supplies, the Saudis are pumping more and the Iranians are underpressure, although it's hard to see them buckling and ending their nuclear programme anytime soon.

And what's in it for India, why would they bother going to all this hassle just to please theAmericans?


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It's no secret India wants a permanent seat on the UN Security Council and having thebacking of the United States will help this endeavour. India also wants help with its nuclearpower programme and the security of supplies of uranium fuel, something else theAmericans can help with.

And the Chinese may well be happy too, buying Iranian crude at discounts.

Already they have been taking more from Iran, with June imports around 650,000 barrels aday, a jump of 53 percent from May, while year-to-date imports are up 49 percent.

Right now, crude markets in Asia might resemble something of a merry-go-round asproducers shift who they sell to and buyers shuffle around suppliers.

(Editing by Clarence Fernandez)

What Would Be The Impact Of Fuel Price Hikes?TEXT SIZE : A | A | A

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The government has moved to ease price controls on petrol and raise other fuel rates. Here are somequestions and answers about the implications.

What Will Be The Political Impact?

Opposition political parties will organise national strikes against and try to block legislation in the next
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parliament session by seeking support from ruling Congress Party coalition allies.

Congress could be hit in major state elections, including West Bengal and Tamil Nadu, in early 2011. But the

hikes come months before these votes and voter backlash can be mitigated by using savings fuel price

deregulation to boost social spending.

There is also an escape clause. The government has already said it would intervene if crude prices risesharply. What sharply means is unclear and it could be used politically to justify an new increase in

subsidies.

What Will Be The Impact On India's Retail Oil Market?

State firms such as Indian Oil Corp, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd, which

control more than 95 per cent of about 40,000 refined fuel pumps operating in India, are likely to lose market

share.

Reliance Industries Ltd, which operates the world's biggest refining complex at Jamnagar, is expected revive

all its pumps, which were shut down five years ago when the government started subsidising fuel sold by

state firms. Essar Oil is also expanding its retail network.

How Soon Would Private Firms Expand Retail Networks?So far, the government has only freed petrol prices, which accounts for about 10 per cent of the oil products

sold in India.

Diesel, used by trucks, buses and a growing number of cars, accounts for more than a third of the oil

consumed in India, and is the more lucrative. Private firms will speed up retail expansion after the

government removes price controls on diesel.

Essar has said it plans to increase its retail network to 1,700 by end-March from the current 1,342.

What Is the Extent Of The Price Rise?

Domestic fuels are taxed differently by the Indian states. If New Delhi prices which are used as a reference,

gasoline prices were raised by 7.3 percent, diesel by 5.2 per cent, kerosene by 32.5 per cent and LPG by

11.3 per cent.

How Would Petrol Prices Be Set In India?

Companies will fix their own prices of petrol. This could see more competition in the retail sector and

eventually push down prices.

How Did It Impact Export Of Oil Products?

Exports may fall. As Reliance increases domestic sales, it may reduce exports as its 660,000 bpd plant to

sell to the domestic market, which is usually more lucrative.

How Does It Impact The Finances Of Oil Firms?

State firms will gain from market rates of gasoline and higher prices of diesel. Before last week's price rise,

state-run retailers were expecting a revenue loss of $24.4 billion this year, based on an average crude priceof $85 a barrel.

Will Issuances Affect The Bond Markets?

No. Oil companies issue bonds to borrow money from the corporate bond market to largely finance the

shortfall in working capital on selling fuel below cost.

However, dealers have said that bond issuances by oil companies will now come down because they will

have more cash in their books after the move to hike prices of domestic fuels.


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Oil companies are marginal players in the corporate bond market, accounting for $1.1 billion in a $22 billion

market.

Will Inflation Stay At Elevated Levels?

Yes. That is very likely. The finance ministry's chief economic adviser, Kaushik Basu said that the price rises

would impact headline inflation by 0.9 percentage points.

Analysts have also estimated that the hike may lead to an increase in headline inflation by more than 100

basis points with a lag of a few weeks.

But forecasts from the Indian Meterological Department suggest that monsoons this year are expected to be

normal, which should bring down both food and headline inflation.

How Does It Impact Rate Expectations In The Markets?

The price move will likely aggravate already existing double digit inflationary pressures. Markets have

already priced in a 25 basis points hike in key rates in the July 27 policy review.

However, because of increasing inflationary pressures, the possibility of stronger policy hike by the RBI have

increased with some traders expecting an inter-meeting rate hike of 25 basis points and another 25 basis

points in the policy review.

Some traders see the Reserve Bank of India (RBI) as hiking rates by 50 basis points in the policy.

Current tight liquidity conditions in the market are also one reason which traders feel could be holding the

RBI back from hiking policy rates before July. 27.

To What Extent Will The Fiscal Deficit Come Down?

The finance secretary says the fiscal deficit in the year ending March 2011 can be slashed to 4.5 percent.

Efforts to rein in the deficit has been buoyed by better-than-expected revenues of about $24 billion from the

auction of third generation telecom and broadband wireless spectrums.

(Reuters)

The effect of rising fuel prices an Indian drivesinsight

Write a review | June 3, 2011 | Article by Lijo Mathai | 1,961 views |Buyers Guide, Driving Tips

Save me God! Why did I ever buy a car which sips on crude oil as a refreshment or

energizer? Why didnt I go with the one with black oil or why did I buy a car in the first place?

All these questions would be clogging the minds of car buyers who opted for petrol cars

whereas the ones who brought in their diesel fuelled cars or even alternate fuelled cars
http://www.indiandrives.com/the-effect-of-rising-fuel-prices-an-indiandrives-insight.html#respondhttp://www.indiandrives.com/category/buyers-guidehttp://www.indiandrives.com/category/driving-tipshttp://www.indiandrives.com/the-effect-of-rising-fuel-prices-an-indiandrives-insight.html#respondhttp://www.indiandrives.com/category/buyers-guidehttp://www.indiandrives.com/category/driving-tips


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would be laughing or scoffing at the price increase. Dont believe us, then just take a look at

the prices of petrol which have nearly went up by a whooping 400 percent in the last 10

years. Starting with 2001, when petrol used to be priced at around Rs 26 per liter, it went

upto Rs 34 per liter in 2004 and then increased to Rs 50 something in 2007. Now it stands at

an astounding Rs 64, which is said to increase till Rs 70 in the coming months and not years.

Thats something which can be called as amazing and really silly. This, we are being told isbecause oil companies want to align the prices of petrol from the domestic market with that

of the international one. Strange. Why cant they rather align it with the price of petrol

available in Kuwait or some other Arab country? A recent report by the Empowered Group of

Ministers or EGoM said that diesel prices are also said to increase in the near future at a rate

of Rs 4 per liter.

This would rather be the first cause where all Indians are voicing their opinion and are

unanimous about it. The reason behind it is that every household in India now has atleast a

bike if not a car. Fuel price hike means that it would grossly affect the calculations that a

middle class person has in mind while buying a vehicle. Even if they dont have a vehicle at

home, they would be using the public transport. Sensing a fuel hike, there would also be a

price hike in the travel fares, which may not be much, however in the longer run would

definitely affect many. In the US, petrol is available at a slightly lower rate than diesel. For

the records, diesel retails at Rs 43 per liter whereas petrol comes in at a slightly lower Rs 41

per liter. However many would have heard or even read that the Americans make a hue and

cry about the rising fuel prices. It must however be noted that its only the people with

American origin who complain and not everyone out there. Migrants like the Chinese and

Indians still buy cars in large numbers and are very happy about the price that they pay for

the fuel and stuff. As far as salary goes, obviously the people living in North America earn far

more than what we do out here. For the average or comparison sakes, a person living in the

United States earns approximately Rs 23 lakhs while for the one staying in India is only Rs

40k. Well but then fuel supplying agencies rarely charge fuel prices based on the average

income or stuff. It depends on how fuel the country as a whole produces or requires and

whether the so called country is a part of OPEC.


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About 40 percentage of the worlds oil supply is governed by the Organization of Petrol

Exporting Countries or OPEC. Out of all the countries in the world, only 13 are a part of it.

Since we Indians rank at number 23 in the list of oil producing countries and hence we are

out of OPEC. All the 13 nations are the ones who control the price of fuel as also its supply

and production all over the world. So due to this, the prices of fuel coming down in India is

next to impossible and that is until India itself finds suitable reserves of oil deep down

somewhere in the Arabian Ocean. However the price of diesel is subsidized here so that

most of the buyers dont feel that they are giving in something more to buy the unclean fuel.

As the price of petrol increases however more than one third of the cars being sold in India

are diesel powered. However there are some car manufacturers who refuse to sell diesel

cars in India and the last remaining one isHonda. Other manufacturers who dont have

diesel motors in their lineup are atleast introducing in LPG or CNG variants of the same

model. The Government of India pays out of the nose to diesel companies for continuingtheir fuel supply to the Indian vehicles. It is said that the government pays about Rs 4 per

liter of diesel sold since the government wants diesel to continue with its subsidized agenda.

Compare this with fuel prices around the world. In Venezuela, its only Rs 1.05 for a liter of

petrol while for diesel, its Rs 0.45 for a liter. However in Brazil, it is the highest with Rs 76 per

liter of petrol and Rs 57 for a liter of black oil. UAE has very high oil reserves and even then,

the price of petrol stands at Rs 21 per liter whereas Rs 36 is the rate of diesel. Seems like
http://newcars.indiandrives.com/cardetails.php?make=Hondahttp://newcars.indiandrives.com/cardetails.php?make=Hondahttp://newcars.indiandrives.com/cardetails.php?make=Hondahttp://newcars.indiandrives.com/cardetails.php?make=Honda


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we have better times here in India as compared with them or maybe even worse. The

situation doesnt look to change in the near future and by the end of 2015, we would be

paying approximately Rs 100 per liter of petrol with diesel coming in at Rs 60 per liter. Move

onto CNG or LPG is our recommendation and you can save yourselves some money as also

contribute to a lower polluting atmosphere overall.

Fuel Price Hike

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Transcript of Fuel Price Hike