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Old 13th March 2020, 15:11   #1
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Default Crude oil prices crash, but India refuses to slash fuel prices

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The fall: The sharp decline in global crude oil prices this week, the biggest drop in prices since the 1991 Gulf War, is good news for the country’s import bill as about 85% of our oil requirement is met through imports.
Crude oil prices crash, but India refuses to slash fuel prices-screenshot-20200313-2.51.08-pm.png

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The opportunity: The last time oil prices fell sharply (between 2014 and 2016), the government didn’t pass on the benefit to consumers, instead, raised excise duties on petrol and diesel to collect more tax. Centre had raised excise duty nine times between November 2014 and January 2016 but cut the tax just once in October 2018, helping it earn over Rs 10 lakh crore from taxes on fuel between 2014-15 and 2018-19. States saw their VAT revenue rise from Rs 1.3 lakh crore in 2014-15 to Rs 1.8 lakh crore in 2017-18. Last week, the Karnataka government announced a hike in tax on petrol from 32% to 35% and on diesel from 21% to 24%.
Crude oil prices crash, but India refuses to slash fuel prices-screenshot-20200313-2.51.31-pm.png

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The tax: Almost half the fuel price is made up of taxes. The centre levies a total of Rs 19.98 per litre of excise duty on petrol and Rs 15.83 per litre on diesel. On top of this, states levy value-added tax (VAT) of 6% to 39%.

The question: While increasing taxes can help bridge some of the holes in the government’s finances, this is also a time of one of the worst economic slowdowns in recent times. The economy grew 4.7% in the December quarter, its slowest pace in nearly seven years. At a time when the government is talking “green shoots”, the urge to earn more from petrol can hurt the economy more (by fuelling inflation), say economists. That’s the reason why the government may not hike duties on petrol and diesel this time around.

The bill: Even if the government decides to pass on the benefit to consumers, it won’t reflect on your bill for another week as revision of prices in India is based on 15 days trailing average price of products. Also, while the price of Brent crude may have fallen to $31 levels, the price of Indian basket of crude remains relatively higher at $45 a barrel. Add to that the 4% drop in rupee value against the dollar this week, which means Indian oil companies will pay more to buy dollars and import oil negating some of the gains from the fall.
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Old 13th March 2020, 15:20   #2
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

Either way - consumption will see a drastic reduction now! Can already feel a reduction in traffic on the roads and usage of cars and public transport services will only decrease further, at least in the short run till a cure for the virus is found. Government stands to suffer more than the citizen, given the current scenario.

Personally, this could be the first month since the last 3-5 years that I'm trying to manage with just one tank-full of diesel, that too, with a weekend overnighter drive included!
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Old 13th March 2020, 15:57   #3
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

This virus could be the "Reset" button this planet was waiting for. Consumption will definitely decrease so would per capita income or net worth. Government's priority would be to stabilize the country's economy and individual like you & me might end up at the loosing end.
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Old 13th March 2020, 16:31   #4
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by blackwasp
While increasing taxes can help bridge some of the holes in the government’s finances, this is also a time of one of the worst economic slowdowns in recent times. The economy grew 4.7% in the December quarter, its slowest pace in nearly seven years. At a time when the government is talking “green shoots”, the urge to earn more from petrol can hurt the economy more (by fuelling inflation), say economists. That’s the reason why the government may not hike duties on petrol and diesel this time around

The BPCL and Air India privatizations will not happen at these prices so there is going to be a massive revenue shortfall for the government. I don't see global crude price cuts being passed on to us consumers.
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Old 13th March 2020, 23:42   #5
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

The easiest way to earn revenue for the government is too tax the crude either which way! The current scenario of sluggish economy demands rate cuts to boost the already besieged sector but then during these Corona times, shortfall of every kind will be made good with the benefits of low crude. To be fair to the government though, it doesn’t have much leeway since Rupee is also losing steam and is at the lowest now! I would definitely like to see petroleum prices going back to pre 2014 prices in some weeks hopefully and help folks like me to make good use of the prices
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Old 14th March 2020, 00:24   #6
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

They may refuse to lower prices (which they often do), but there isn't much they can do to increase demand.
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Old 14th March 2020, 05:19   #7
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

The question is if the fuel prices are linked to international market prices why is it that when the prices crash the benefit not passed on to consumers. When there is a increase they are immediately raised. Now the moot point is that as the fuel prices are not subsidized or controlled by govt. then why the govt.is not stepping in when the fuel companies are doing harakari. They should be bound to pass benefits too if they operate as per market . Even a one day delay is paramount to hundreds to crones benefit to them.
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Old 14th March 2020, 06:37   #8
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

It is just my opinion, we should not over tax basic commodities. This is because, basic commodities affect every one regardless of poor or rich or middle class. Taxing 130% on a basic commodity is no different than the legendary salt tax of British days.

Disclaimer: this is not intended to point at a specific Government since all state Governments contribute.

Last edited by Thermodynamics : 14th March 2020 at 06:59.
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Old 14th March 2020, 09:23   #9
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

AFAIK, the price fluctuations are forward looking - they will not reflect immediately.
Secondly, Rupee has hit almost 75 to a $ - this is offsetting some of the oil price drop adversely.
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Old 14th March 2020, 09:39   #10
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by Sandeep500 View Post
then why the govt.is not stepping in when the fuel companies are doing harakari. They should be bound to pass benefits too if they operate as per market . Even a one day delay is paramount to hundreds to crones benefit to them.
Because the harakari is not being done by the fuel companies. Its being done by those people who tinker with the tax rates in only one direction.
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Old 14th March 2020, 09:42   #11
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

And we have a 3 rupee hike today.

Source: https://wap.business-standard.com/ar...1400177_1.html
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Old 14th March 2020, 09:50   #12
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by prkiran View Post
And we have a 3 rupee hike today.

Source: https://wap.business-standard.com/ar...1400177_1.html
I don't know what to say to this, on one hand my rational brain tells me this is required by the government, to adjust the revenue shortfalls from economy slowdown but on the other hand my heart says this is looting from the common folks by the government
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Old 14th March 2020, 10:26   #13
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by prkiran View Post
And we have a 3 rupee hike today.

Source: https://wap.business-standard.com/ar...1400177_1.html
Excise duties increased does not mean increase in price to customers.Market price will remain same or will fall despite this.
https://www.cnbctv18.com/energy/govt...re-5482141.htm
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Old 14th March 2020, 15:52   #14
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by Equus View Post
AFAIK, the price fluctuations are forward looking - they will not reflect immediately.
Secondly, Rupee has hit almost 75 to a $ - this is offsetting some of the oil price drop adversely.
Rightly pointed, the net effect of price reduction for us in rupee terms would have been less, (around 3rs reduction would be possible) but due to slow down and Corona virus risk to consumption, reduced tax compliance of GST will further tighten the management of country.

So the govt. smartly increased the duty and kept the prices same which will offset the loss from tax collection. At the moment taxes from fuel is the only savior.
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Old 14th March 2020, 16:43   #15
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Default re: Crude oil prices crash, but India refuses to slash fuel prices

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Originally Posted by Chetan_Rao View Post
They may refuse to lower prices (which they often do), but there isn't much they can do to increase demand.
Excise is up by Rs. 3 per litre. Add the local taxes to that. This is only to be expected with the global economy in a tailspin. The costs of Covid-19 adds to these expenses.
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