The price hike of Rs 6.28 per litre (Excluding VAT & other taxes), effective from 24/5/2012 is absolutely justified as the current global situations and India’s political considerations have compelled this situation. This has embarked the steepest quantum of price hike since the past 10 years, with the previous hike in November 2011 being Rs 1.82 per litre.
The simple phenomena why I call this price hike a justified one is answered by this question:
“With the high inflationary values in the nation’s economy are you ready to sell a product below the cost of your Resource Procurement?”
Oil companies in India are losing Rs 1.50 per litre of petrol even after the price hike was announced yesterday afternoon (24/5/2012) & before this hike companies were losing Rs8 – Rs 8.50 on an average per litre. This telling statistic from the Indian Oil Corporation will certainly affect the mindset of those people who think that it is the Oil companies in India who is to be blamed for. Since November these companies have been forced to remain stagnant with price hikes due to political reasons like the State Assembly Elections & Parliamentary Budget Sessions. Therefore, these political constraints since the past 5-6 months have caused the exorbitant price hike last afternoon after completion of the Parliamentary sessions with regards to the budget. This elongated the wait which was imposed upon by the Government of India has resulted in losses of Rs 4,260crore rupees since December, 2011. One can clearly derive that government consultations are necessary while fixing up the price hike rates and that they must be well informed before announcing them.
To justify this hike, the Oil companies have also mentioned that they have not been compensated for losses in the last fiscal year which accounts to Rs 1.8 lakh crore rupees. The recent weakening of the rupee has also affected the pricing of oil as it follows a direct relationship between the dollar exchange rate and crude prices. For every depreciation in rupee, Oil marketing companies lose Rs 8000crores annually. Petrol, which is a deregulated commodity was not accounted for the last compensation of Rs 38,500crores which was provided for these Oil companies. These losses have forced the Petroleum companies in India to write to the government to list Petrol in the regulatory protocol, which will ensure compensation of losses incurred. If this price hike was not introduced the companies would reach an exhaustive point where they would be unable to import crude further leading to shortage of petroleum products. The only way of earning profits for these companies is evolving the crude oil through refineries into benzene & tolveze which are often used in various industries. The difference in the Petrol & Diesel prices is about Rs32-Rs33, which affects the demand of Petrol cars and even car manufacturers are of the view that the Government of India must either reduce taxes or make Petrol a regulated commodity which might help decrease the price of Petrol if not level it.
The Rs 6.28 hike per litre is decided upon by Oil companies on fortnight basis which is calculated on the average of the previous fortnight from the date of announcement. The fortnight being 27th April to 11th May,2012 where the average of Crude oil price being $113.24 & Dollar exchange rate being $1=Rs 53.17 was taken into consideration. This average works out to an under recovery rate of Rs 6.28 which was the addition to the existing Petrol price. One could state that the time of announcement was appropriate in terms of public opinion as the Exchange rate is at an upward trend of Rs 56 which would lead to a much higher price hike. Companies in India are of the view that it is a tough ask for citizens to pay such an increased value for Petrol but they cannot sell it at an unaffordable price for them. They believe that the only way prices can come down is if the Government amends its taxation system on Petrol. Indian Government has applied Value Added Tax, Excise duty, Education Tax, Crude oil custom duty, Transportation Cost on Petrol. Further down the actual Petrol Cost & Dealer Commission is an addition which all together is paid by the consumer. Crude oil accounts for only 36-40% of the total Petrol price in India and the rest goes in the form of taxes. The Government Of India gets more than 50% of the price paid per litre for petrol which is highly unacceptable. Above all of this the VAT applied depends on the State Government as noticed in the case of Goa where the reduction in VAT has pulled down the price of Petrol Rs 11 cheaper.
It is very important for the common man to know that through this price hike Oil Companies are not trying to recover the loss which they have incurred in the past few months, but they are trying to avoid or reduce further loss in revenue from Petrol. Therefore, if the people of India have to revolt against this price hike, it is the government who is to be individually blamed and not the Oil Companies in India.