Petrol price = cost price (procuring + refining + marketing) + tax (central + state) Cost price = f(international crude price) International Crude Price = f(Supply, Demand, Government policies, Financial Institutions, Geopolitics) International crude price is rising, therefore cost price is rising thus increasing the petrol price. What is government doing about it? Passing the international price rise on to the consumer slowly since it wants to move towards market determined price. Can this price rise be controlled? Yes and No. Yes, if government is willing to reduce its revenues from the taxes on petroleum No, if it decides to pass on the price increase and maintain its tax revenues. Will the government reduce its tax revenues? No, since oil revenues form a major chunk of government revenues (~35%) and there is no substitute to this revenue in the short run. So in the short term petrol are bound to increase. Why only petrol price is increasing as compared to diesel, LPG, Kerosene? Since the consumers of petrol are mainly middle and higher classes (as per income or expenditure), therefore these consumers have higher ability to absorb price rise. Why not diesel and Kerosene? Food prices are directly tied to diesel prices. Kerosene is mainly used by rural poor. So their ability to absorb the price rise is lesser. Therefore the government chooses to pass on the international price rise (without reducing its tax revenues) in petrol first.
Posted on: Sun, 01 Sep 2013 12:12:46 +0000