{"id":72406,"date":"2020-12-11T20:50:52","date_gmt":"2020-12-11T15:20:52","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=72406"},"modified":"2021-03-04T15:13:34","modified_gmt":"2021-03-04T09:43:34","slug":"why-oil-prices-are-so-high-in-india-how-and-why-should-india-achieve-end-of-oil-age","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/why-oil-prices-are-so-high-in-india-how-and-why-should-india-achieve-end-of-oil-age\/","title":{"rendered":"Qrious Project: Why petrol price is increasing in India? How and why should India achieve “End of oil-age”?"},"content":{"rendered":"

Adding to the already high stress on the economy due to technical recession and inflation, OIL MARKETING companies have hiked the prices of petrol and diesel by over Rs. 2 and by nearly Rs. 3.50, respectively, since November 19, after a period of 59 days when prices were held static.\u00a0 But why the petrol price is increasing in India all of a sudden?\u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/span><\/p>\n

The present surge in oil prices is\u00a0driven by the\u00a0hope that\u00a0COVID\u00a0vaccines would lead to demand recovery\u00a0and\u00a0OPEC+ will delay a planned rise in oil output.<\/strong><\/em>\u00a0<\/span><\/p>\n

Though this price rise may be a temporary phenomenon, but for India, the high oil price is a persistent problem.\u00a0<\/span><\/p>\n

Why petrol price is increasing in India?<\/span><\/strong><\/p>\n

There are many reasons for the petrol price increase. <\/span>The retail price of oil in India is made up of multiple components\u00a0i.e.,\u00a0Global crude oil prices\u00a0+\u00a0Margin of transportation and refining +\u00a0Central Excise Duty +\u00a0Dealer\u2019s Commission +\u00a0State VAT (Value Added Tax).\u00a0<\/strong>Fluctuation in the final price of oil in India can be caused by any of these components.\u00a0\u00a0<\/span><\/p>\n

However, India\u2019s retail fuel price is one of the highest among its neighbouring countries<\/strong>.\u00a0Following are some of the factors contributing to high prices in India:\u00a0<\/span><\/p>\n

Firstly, India is heavily dependent upon import<\/strong>s for its oil requirements. India\u00a0is the third-largest oil consumer in the entire world, with 84% of it being imported.\u00a0Any major fluctuation in the international\u00a0Crude prices\u00a0due to events like Iran\u00a0sanctions or the Syria war\u00a0directly impacts oil prices in India.\u00a0<\/span><\/p>\n

Secondly, high\u00a0excise duty by center and\u00a0VAT by states<\/strong> on petrol and diesel\u00a0is the most important factor behind high oil prices in India.\u00a0Taxes make up for nearly two-thirds of the retail selling price.\u00a0During lockdown even though\u00a0International crude oil prices\u00a0crashed sharply but oil prices kept on increasing as the government\u00a0imposed\u00a0additional duties and\u00a0cesses\u00a0on oil to generate additional tax revenues.\u00a0In Short, the tax rate on fuel in India is highest compared to any other country in the world. \u00a0<\/span><\/p>\n

Thirdly,\u00a0Under\u00a0the\u00a0present\u00a0<\/b>dynamic\u00a0<\/b>fuel\u00a0<\/b>pricing system\u00a0<\/b>fuel\u00a0prices are getting\u00a0revised on a\u00a0daily\u00a0basis. Thus, any hike in the international market is getting reflected immediately.\u00a0<\/span><\/p>\n

Fourthly, As mentioned above too, India is import-dependent for its fuel requirements, thus the exchange rate<\/strong> also plays an important\u00a0role in determining the fuel prices.\u00a0Depreciation of the Rupee against the Dollar will\u00a0increase\u00a0the\u00a0volume of Rupee required to make payment in terms of Dollars.\u00a0<\/span><\/p>\n

How India can end the oil age?<\/b>\u00a0<\/span><\/p>\n

The oil age is over a hundred years now since 1911 when Winston Churchill as minister of the navy decided to convert the British naval fleet from coal to oil. \u00a0<\/span><\/p>\n

End of Oil age is the theory<\/strong> first formulized in 2005 that said oil age will end due to the fall in production of oil<\/strong> and non-replacement of it along with skyrocketing prices. But the theory was reversed<\/strong> recently after the US Shale gas revolution and the emergence of Electric vehicles after Paris Climate Summit, and now advocates that all these developments will make oil obsolete(due to falling demand)<\/strong> within few decades of Peak Oil demand. \u00a0<\/span><\/p>\n

There is no consensus on the timing of peak demand<\/strong>. For instance, While\u00a0BP believes, it has already peaked; the International Energy Agency (IEA) projects it will peak by 2028.\u00a0<\/span><\/p>\n

However, India needs to create its own strategy to bring an end to Oil age in the country. Following suggestions can be adopted for the same;\u00a0<\/span><\/p>\n