Teji Mandi Explains: Surging fuel prices could push up inflation

04:30 PM Oct 04, 2021 | Teji Mandi

Rising international crude oil prices are burning pockets of laymen in India. Petrol and diesel prices have been hiked again, and this time to a record-high level. Petrol is retailing at Rs 108/litre in Mumbai while diesel has gone up to Rs 98/litre. The concern now is that the rise of petrol and diesel prices will feed onto the prices of other commodities, just before the festive season in India.

Current Petrol & Diesel Prices


Fuel prices have climbed to a fresh all-time high in all the metro cities. In Delhi, petrol costs Rs 101.89 per litre, while in Mumbai, it costs nearly Rs 108 per litre. In Kolkata, it costs Rs 102.47 a litre, while in Chennai, it costs Rs 99.58 per litre. Diesel prices in the national capital, on the other hand, have crossed Rs 90 per litre for the first time and are just one rise away from crossing Rs 98 per litre in Mumbai. In Kolkata, diesel costs Rs 93.27 per litre, whereas in Chennai, it costs Rs 94.74 per litre.


What’s Going To Happen Now?

Festive season is upon us, and the higher fuel prices will only be a baggage for other commodities now. Experts have raised their concerns that other sectors will now have to face the brunt of this and increase the prices of their goods. This is because the fuel prices directly affect the input costs that go into manufacturing or delivery of a product. Fuel price hike in the most-important third quarter of the year will negatively impact the consumer sentiment given that the demand is always higher at this time. The situation for the middle class is going to be different, whose incomes and purchasing power has perhaps still not recovered from the pandemic’s shock.

Blame Game

Surprisingly enough, the Union government has said that it does not plan to bring down the tax on petrol-diesel immediately. The bulk of the taxes levied on fuel price comes from the Union government. This means that the fuel prices won’t go down in the near future.

Last week, Union Petroleum Minister Hardeep Singh Puri blamed the states for the rising fuel prices. The petroleum minister said that the centre kept the tax on fuel unchanged even as the cost of crude oil saw a huge increase. States like West Bengal increased prices by ₹3.51 per litre since July, taking the per litre cost of petrol over Rs 100-mark. Puri said that the prices can come down if fuel is brought under GST but several states have opposed it.

On the other hand, Finance Minister Nirmala Sitharaman told the press clearly that the GST council members were very clear that they don’t want to bring fuel under the ambit of GST.

Fuel Price Not A Part Of Welfare Expenditure?

Yes, it’s true that the international crude oil prices determine the cost of fuels in India. Our country imports fuel from the Middle East, and the volatility in their prices hits us hard. But another factor that influences the fuel prices greatly is the central and state government taxes.

According to the data from Petroleum Planning and Analysis Cell, the base price of petrol reduced from Rs 47.12 in May 2014 to Rs 37.29 in June 2021, and central taxes increased from Rs 10.39 in May 2014 to Rs 32.9 in June 2021. Union Minister Dharmendra Pradhan said that levies on fuel are helping the centre to afford the current welfare expenditure.

Meanwhile, the government is earning higher revenue through the excise collections from fuel prices. In 2014-15, the central excise duty collected was Rs 29,279 crore on petrol and Rs 42,881 crore on diesel. By April 2020-January 2021, the excise duty increased by 400% to Rs 89,575 crore from petrol and Rs 2,04,906 on diesel.

(To view our epaper please Read Now. For all the latest News, Mumbai, Entertainment, Cricket, Business and Featured News updates, visit Free Press Journal. Also, follow us on Twitter and Instagram and do like our Facebook page for continuous updates on the go)