Global oil prices are witnessing a significant drop, Will Petrol and Diesel Prices Drop by Rs 10, but will this impact petrol and diesel prices in India? In the past, the pricing mechanism was controlled by the government, but now, market-driven forces decide the fuel prices. Despite a reduction in global crude oil prices, there seems to be little to no relief for Indian consumers. Let’s explore why this is happening and whether we can expect a price cut soon.
Understanding the Market-Driven Pricing Mechanism
Since the government removed the administrative pricing system, fuel prices in India are now determined by market forces. The shift to a market-driven mechanism was supposed to benefit consumers, with prices expected to rise and fall in line with global crude oil prices. However, in practice, this hasn’t always been the case. For example, during the COVID-19 pandemic, global crude oil prices fell to around $19 per barrel, the lowest in 20 years, but Indian consumers didn’t see any significant reduction in fuel prices.
Why Aren’t Petrol and Diesel Prices Falling?
One of the main reasons for the high fuel prices in India is the heavy taxes imposed by the government. Even when global oil prices fall, the government tends to increase taxes on petrol and diesel to maintain its revenue. This strategy prevents any significant price relief for consumers. For instance, during the COVID-19 pandemic, when oil prices hit rock bottom, the government increased taxes rather than passing the benefit to the public.
Additionally, when global oil prices rise, the burden is directly passed on to the consumers, leading to a sharp increase in petrol and diesel prices. However, when prices fall, consumers rarely experience a corresponding drop in fuel costs.
Recent Global Oil Price Trends
As of September 2024, Brent crude oil, which India primarily imports, has dropped to $71 per barrel, the lowest since August 2021. In the past six months alone, global oil prices have decreased by nearly 20%. Typically, geopolitical tensions, especially in oil-producing regions like West Asia and North Africa, lead to fluctuations in global oil prices. Despite ongoing conflicts, such as the Israel-Hamas tensions, oil production and supply have remained relatively stable, which has contributed to the decline in oil prices.
China, the world’s largest importer of crude oil, has also seen a significant drop in demand due to slower-than-expected economic growth. This decrease in demand has further contributed to the fall in global oil prices.
Impact of Geopolitical Tensions on Oil Prices
Normally, geopolitical tensions in oil-rich regions like the Middle East result in a rise in oil prices due to supply disruptions. However, despite ongoing tensions, such as the Israel-Palestine conflict and the Russia-Ukraine war, oil production has not been severely disrupted. This is another reason why global oil prices have fallen by 20% in recent months.
Nevertheless, the threat of further tensions remains, and any significant disruptions in oil supply could cause prices to rise again. Some analysts predict that global oil prices could climb back to $80-$84 per barrel in the coming months, depending on how geopolitical events unfold.
Why Haven’t Indian Fuel Prices Decreased?
Given the 20% drop in global oil prices, why haven’t Indian petrol and diesel prices followed suit? The answer lies in the government’s taxation policies. The Indian government heavily taxes petrol and diesel, and these taxes account for a large portion of the retail price that consumers pay. Even when global oil prices fall, these taxes are not reduced, preventing any meaningful drop in fuel prices.
For example, in 2014, when Narendra Modi became the Prime Minister of India, global oil prices were around $108 per barrel. Today, even though prices have dropped to nearly half of that, fuel prices in India remain higher due to increased taxes.
Speculations on a Potential Price Cut
There has been speculation that petrol prices may drop by Rs. 10 and diesel by Rs. 6-7 per liter in the coming months. This speculation arises from the upcoming state elections, particularly in Haryana, Jammu & Kashmir, and Maharashtra. Historically, fuel prices in India tend to remain stable or even drop during election periods, as the ruling government tries to avoid voter dissatisfaction.
The results of the Haryana elections, expected in the first week of October, could significantly influence the government’s decision on fuel prices. If the BJP performs well, there might not be any price reduction. However, if they face a setback, the government may lower fuel prices ahead of the crucial Maharashtra elections in November.
The Role of Upcoming Elections
Indian elections have always had an impact on fuel prices. During election seasons, governments are hesitant to raise fuel prices, as it can negatively affect their chances at the polls. If the ruling party performs poorly in state elections, it often leads to a reduction in fuel prices to regain public favor.
In the current scenario, if the BJP does not perform well in the Haryana elections, there is a higher likelihood that petrol and diesel prices will be reduced before the Maharashtra elections. On the other hand
