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Causes & Impacts of hike in fuel prices in India

What is the main reason behind the hike in fuel prices?

The main reason behind the hike is the high crude oil prices that are everyday setting new records across India in 2021. In the below picture we can see that the first process is the crude oil price which changes every day.

-Process of breaking down fuel prices-

The price of crude oil has been increasing day by day since 2018 due to which the price of petrol and diesel are also making records. The petroleum ministry is also repeatedly working and speaking to the oil supplying countries to charge less for the Crude oil in Asian countries. Now let’s see how India is handling the situation.

The price of Brent Crude's rate per barrel reached $81.95 this week while it was $50.57 in 2018. The main oil-producing countries are continuously increasing their production because everything was on hold during the pandemic. In the latest round of meeting OPEC(Organization of the Petroleum Exporting Countries) decided to supply only 400,000 barrels/day due to which there was a sharp increase in the prices of fuel.

OPEC had also decided in 2020 to cut the supply due to travel restrictions but now when the supply is needed then the production is not faster. So the increased crude oil prices can recover the global economy. Even some crude oil producers that had cut production when the prices were low are waiting to see if the prices could sustain before starting the production.

Impacts (Is baar Petrol 100 ke paar)

According to a survey by Local Circles, around 51% of Indians are leaving their other expenses to manage their fuel expenses. Around 21% of people said that they are “cutting their spending on the essentials which is very painful” for them. And 14% are using their savings to pay for it. The survey showed that 43% of people’s petrol and diesel bills were lower during the lockdown due to working from home and 2% said that they have no spending on fuels. The middle class and below the margins are struggling in our societies. These challenges are due to runaway inflation and a sudden rise in the price of nearly all household items and essential things.

Role of state governments

The state governments impose the sales tax (VAT) which differs from state to state. According to the petroleum ministry planning and analysis cell website, state governments follow different methods for collecting taxes.

Solution by Finance Minister

Nirmala Sitharaman had increased central excise duty on fuels by a record during last year to equalize gains arising from international oil prices. She explained the tax structure and how production cuts by oil cartel OPEC and its announcements led to a reform in international oil prices, leading to a hike in retail rates in India. She also said for bringing petrol and diesel under the Goods and Services Tax regime, which will end the overflow impact of taxes and bring uniformity.

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