Petrol Prices Hike


Written on 10:30 AM by nitesh

The June 5 increase in petrol and diesel prices by Rs. 4 and Rs. 2 respectively 6th time in the last 2 years has created a huge hue and cry in the country. As expected opposition parties are opposing this move (this has become an unwritten rule that every action taken by government whether good or bad will be opposed by the opposition) and have planned nationwide protests.

I will first put points both against and in favor of this move then decide if it was right or wrong.


Reduction in taxes which both the centre and state charges on petrol and diesel should have been the first option.

Petroleum sector fetches maximum revenue for the government as compared to any other sectors. In 2004-05 it was Rs. 120000 crores, out of which Rs 57000 came from customs and other taxes levied by the centre and state governments earned to the tune of Rs 63000 by sales tax. Sales tax in states ranges from 20% on petrol and 12.5% on diesel in Delhi to 25-30% in various other states. Petrol is much costlier on states like Maharashtra, A.P and Tamil Nadu because of very high sales tax. Petrol in much cheaper in our neighboring countries like Pakistan and Bangladesh as taxes is less there. First measure would have been reduction in the taxes levied by both centre and state on petroleum products, although it will decrease the government earnings but the consumer would be least affected.


Crude oil prices in international markets are soaring climbing up to $70 a barrel. Main reasons for steep rise in international markets are Iraq war, increase in consumption by China and India and many developing countries. Petroleum companies are facing losses amounting to tunes of crores because of the increase in crude oil prices, three-fourths of the crude oil is imported and cost of crude oil constitutes 90% of the production costs. Such crisis can be dealt by sharing of burden among consumers, government and oil psu’s, so price hike was unavoidable. Although the propose hike by the committee set up by the government was Rs. 10 for petrol Rs. 8 for diesel Rs. 14 for kerosene and Rs. 140 for LPG , but kerosene and LPG prices were not increased reasoning that they are used by low-income households. Government also reduced custom duty on petrol and diesel from 10 to 7.5%. Rising prices will help in earning around 9000 crores and reduction in custom duty will amount to 6000 crores loss, so oil companies and government will be less burdened by 3000 crores. This is very less as around 80% of the burden is shouldered by government and oil companies which amounts to more than 50000+ crores.

Lowering of taxes by states will result in less income for governments so there will be less money for development projects and also increase in budget deficits. Another point to be noted is that the on the cost of petrol 55% and for diesel 40% taxes are charged which is much less then European union which charges 68%.

With no other viable solution available now I guess price increase in the only option.

I feel the opposition parties should stop the practice of opposing every time the price is hiked. BJP’s and left parties are planning nationwide protests, hartals which will not solve the purpose but will disturb the common man and cripple normal life. It is the same BJP which also increases prices during its rein.

For the first time the ruling party Congress is unhappy over the price hike. Congress says it was not consulted while revising the prices. As far as I know our prime minister belongs to congress, so how come this illogical question can be raised by the congress. These political gimmicks should be stopped now and instead parties should force government to devote more funds towards research in bio gas fuel, generating fuel through ‘jathropha’ a plant and educating public in judiciously using fuel.

Congress directive its ruling states to waive sales tax on increased prices is a good step, as state governments can go away with profit earned through the price hike. Other parties should also direct their ruling state governments to waive taxes.

and who knows petrol prices are also set in keeping mind the quota stuff, lower prices for sc, st's etc

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1 Comment

  1. Abhishek Khurana |

    aaha!...Editorial stuff in ur blog.
    saale gyan de raha hai.
    just kidding!...all in all good thoughts been put up...keep them coming.


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