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What is Petrol?
Petrol is a flammable liquid derived from petroleum, used primarily as fuel for many internal combustion engines. It consists mainly of organic compounds derived from the fractional distillation of petroleum, which is developed with various additives. It is used as fuel for cars, heating units, and machinery. Like mineral oil, it is easy to extract, and like gasoline, it is an efficient energy source. It has a high energy content, which means that a small amount of petroleum provides a large amount of energy. Since most of the world relies on petroleum for many goods and services, the petroleum industry has great potential. It also has a huge impact on global politics and the global economy.
How does India fulfil its petroleum needs?
India is the third-largest oil market globally, and relies heavily on crude oil to promote dreams and development. The petrol consumption in India is about 211.6 million tons annually. Of this, less than 35 million tons is produced in India. India does not have enough reserves, and new oil fields have not yet been explored. India gets its oil from Iraq, Saudi Arabia, the United Arab Emirates, the United States, and Canada, among other countries. India imports about 85 percent of its imports, which is the main factor that affects fuel prices in India.
Current Scenario and Main reasons behind the petrol price hike
Crude oil prices have risen 25% since 2022, but petrol prices have not fluctuated accordingly. Petrol prices exceeded INR 100 a litre in several Indian cities over the past few weeks, falling into inflation, and putting pressure on the domestic budget. Although the fuel price hike may be explained by global inflation, a higher tax rate plays a significant role in these products. Another fuel price hike factor is a two-month suspension of fuel prices in the March and April election months.
Factors that affect fuel prices in India
Crude oil is an international commodity. The change in the price of this commodity directly affects the price of petrol and diesel in India. Whenever there is a change in demand and supply of crude oil, prices vary. In addition, international political relations and future reserves and supplies also directly impact crude oil prices.
The federal government imposes taxes on petrol and diesel, and one should keep in mind that the middle tax rate is a predetermined amount of money and not a percentage. Therefore, the function does not change with the price of oil. Over the past few years, the Government of India has increased its tax rate many times over.
The VAT or Sales tax is levied on the relevant provincial governments. It is calculated after considering a few other factors such as property tax, commission sales, etc.
Crude oil is acquired and distributed by Oil Marketing Companies (OMCs). The price charged by OMCs to retailers is an important factor in determining the price of residual oil. This price is also based on property costs, refining costs, etc. Oil companies or OMCs also pay commissions to oil retailers, and the petrol pump owners have their benefits, costs, and profits included in this commission.
As the number of two-wheelers and four-wheel drive grows on Indian roads, the demand for fuel and diesel is also growing. As oil refining companies in India have to find crude oil in the international market to process the same into petrol and diesel, the supply will not always be fulfilled. When supply is low and demand is high, in terms of economic law, the price of petrol will inevitably go up.
Crude oil imported into India is exported to refineries for processing. If the number of refineries is low, the amount of fuel or diesel available for sale will also be lower. This will also mean that supply will decrease, which in turn will increase fuel prices.
One major fuel price hike factor in India is the Indian Rupee value compared to the US Dollar. Crude oil, refined petrol, and diesel are bought in international markets, making transactions in dollars. Thus, the USD’s strength against the INR is a direct factor. If the US dollar is strong, the cost of buying crude oil will be higher. This will mean that the price of the finished product will also be higher.
Conclusion
According to a study, most Indians have reduced their expenses to control their use of petrol prices. Some respondents said that reduced spending on important things is painful. Many respondents said that their monthly bills for fuel or diesel were lower because of commuting to work or working at home, among other things. Also, some of them reported that they have not been able to use fuel as lack of money and unprecedented inflation have taken a toll on every household. Why is petrol getting costlier in India every day? This is the question that has been answered, but the solution to the fuel price hike affecting the general public remains unanswered.
