Dynamic petroleum prices

Kashmir Times. Dated: 11/13/2017 12:55:47 AM

Slippery prices of petroleum products and fixing of rates through dynamic pricing mechanism has provided no respite to Indian consumers

The introduction of dynamic pricing mechanism for fixing of retail rates of petroleum products in the Indian market by the NDA-government does not appear to have provided any respite to the consumers during the past three and a half years. In fact, the retail prices of the fuel oils have been quite high for the Indian consumers despite slippery oil prices in the international market. There has been massive decline in the prices of crude in the international markets during the past four years but the consumers in India have continued to pay a high price for the petroleum products. The petrol, diesel and kerosene oils have witnessed a slight variation in their prices during this period when the prices in the international market are just one-third of what they used to be four years back. It was only last year that the petrol price came down to the level of Rs 60 per litre but the hike in the taxes particularly the imposition of excise duty by the centre and local sales taxes by respective states in the country kept the retail prices high. The consumers have every right to question the policy of the centre when it comes to pricing mechanism for the petroleum products because Indians continue to pay high price for consumption of petrol, diesel and kerosene oil. It is unfortunate that the central government has increased the excise duty on petroleum products by more than 200 percent in less than one year while the sales tax has also been doubled compared to previous years. Moreover, the consumers have also questioned the policy of the centre in keeping the petroleum products outside the purview of the Good and Services Tax (GST) regime that was implemented across the country on July 1 this year. Touted as 'one nation one tax', the GST regime has failed to do any justice to the consumers so far as the petroleum prices are concerned. The politicians made it a point to mislead the people that most of the commodities will become cheaper once the GST regime is made operational across the country. But that has not happened and the central government in consultation with the members of the GST Council has been forced to bring down the rates of GST on various commodities from the high of 28 percent to 18 percent and in some cases, it has been revised and brought down to 5 percent in the last four months. The opposition has been rightly blaming the central government of lack of vision and foresight on the implementation of the GST regime.
On the other hand, the price of oil has risen sharply in recent weeks leading to renewed forecasts of a sustained bull market in the price of the commodity. The price of Brent crude, which breached the 60 US Dollars mark late last month, is currently trading at about 64 US Dollars per barrel, a two-year high. In the last one month alone, oil has gained well over 12 percent. The oil rally has been even sharper from its June low of a little below 45 US Dollars, from where the commodity has rallied more than 40 percent to reach its current price, with some experts saying the ongoing rally could portend even higher prices in the coming months. The upsurge this week has been driven primarily by political uncertainty in Saudi Arabia, the world's second largest producer of oil, and the tightening of supply by the Organisation of the Petroleum Exporting Countries, which is expected to extend its supply-cut agreement beyond March. Whether the price gains would sustain and continue or not over an extended period of time still remains a big question for various reasons. Shale oil production is the biggest among them. In the past, North American producers of shale brought a multi-year bull market in oil to an abrupt end. Since then, OPEC has struggled to maintain control over oil prices except for brief spells. The American shale industry has been let free to increase production in response to higher prices, thus imposing a cap on the price of oil. There are no signs yet of a structural change in the oil market to suggest that it could be any different this time. India has derived huge benefits from lower oil prices since 2014, with the government's fiscal management and inflation-targeting being rendered a lot easier. There is bound to be some economic unease now as the price of oil fluctuates in what looks likely to be a range-bound market. A repeat of the huge damage caused by the last oil bull market, however, seems unlikely. However, policymakers in Delhi should take a cautious stance given the extensive impact that oil prices have on the Indian economy that has witnessed a slowdown during the past one year.

 

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