Onslaught of Escalating Fuel Prices

Over the past one month or so, starting from 7 June 2020, both diesel and petrol prices have shot up in the country by 17% (or `11.66 a litre) and 13% (or `9.17 a litre), respectively. As on 13 July 2020, in major metro cities like Delhi, petrol and diesel were selling at `80.43 a litre and `81.05 a litre, respectively, while in Mumbai, the unit prices hovered at `87.19 and `79.29, respectively. The global price of crude oil, however, has remained between $40 and $43 a barrel during this time. Juxtapose the current situation to the last quarter of 2018, when petrol prices in most of the state capitals were hovering between `81–`83 and `85–`87 per litre vis-à-vis the global oil price of $80 per barrel, which was nearly double the current prices prevailing in the international market. With consumers being unable to leverage the benefits of low global oil prices in contrast to how they must bear the brunt when the prices spike, the purpose of India’s fuel price deregulations (of 2010 and 2014) is again put to question.

In theory, petrol and diesel retail prices in India are linked to the global crude prices, which in effect would mean that if crude prices fall in the international market—as has been the trend since February—then domestic retail prices should
come down too. But, in practice, oil price decontrol seems to be rigid/sticky downwards. This happens because every time the (global) prices fall, the government imposes fresh taxes and levies to rake up extra revenues. Eventually, the consumers are short-changed and continue paying either what they were paying previously or end up paying even more. On the other hand, price decontrol enables the Indian fuel retailers to fix the retail prices based on their profit calculations over and above the costs (or prices) at which they source their inputs from the upstream oil companies for whom the price benchmark is derived from global crude prices.