Re.5 Petrol Price Game. Why, How, other Impact.

The question remains unanswered, Is the Petrol - A Necessity or Luxury? Well a continuous increase in the petrol price has turning the good to be an Luxury product very soon. 

Well this article will be dealt with the basic question which arises to a layman such as, Why the Petrol/Fuel Prices are Rising, Does the Rise in Petrol/Fuel Prices Impact an Individual/ Me much? and I heard an statement from one person while filling up my tank at gas station, "It's only Rs.5 increase and that to only in petrol, what's the big deal". I hope even he reads this article and know more how it can impact in other way to him.

Long queue at gas station to get their Petrol tanks filled.

First, Why the Petrol prices Increased?

Simple, the PSU's are buying the fuel/oil products at higher price than what they are selling it. The prices of Global markets are going high daily and this has made the companies to sell the petrol for less than market price,making them loose over Rs.8 per litre approximately.

But why only Petrol prices has Increased but not diesel or other?

Petrol prices are deregulated and Oil Manufacturing Companies (OMC's) can fix their own retail prices, and cannot fix the retail prices of diesel, kerosene and Liquid Petroleum Gas(LPG) as per current Pricing Mechanism. So the money is compensated from Petrol price.

More on government wont encourage to increase the prices of Diesel because most of the Plants/Manufacturing companies/ Transportation uses diesel for its operation, and if the prices are increase it would have an huge impact (directly) on all the products in the country and effect each and each individual. 

Oil companies had kept petrol prices on hold as the ruling UPA coalition did not want to lose votes in the assembly elections in the five states.

What the Impact on OMC's because of it?

A subsidy of Rs 26 is being given on kerosene/litre, Rs 16 on diesel/litre and Rs 320 per cylinder of LPG(14.2 kg only not on commercial cylinder).

The increase in fuel prices will help oil marketing companies cut under-recoveries by Rs 22,000 crore this year, from the fixed limit by Pranab Mukerjee(Finance Minister) of Rs.23,000 crores for fuel subsidy in the current year(2010-11) Financial Budget which was planned that it wont make any pressure on government finances and and the aim of bringing down the fiscal deficit will be achieved.  But since the crude prices are further rising to US$120/gallon funds allocation has to be done.  Because the Fiscal deficit(the amount shortage /spending more than its revenues in an financial year) has to be reduced the finance minster has not cut the customs and excise duty on crude(revenues in the way of taxes will fall down if reduced).

This hike in petrol prices will fuel inflation further as commuting and freight prices go up and further add the pressure on increasing the rate of essential food products and gives an pinch to the monthly budgets of an individual.

Humor Cartoon referring Loan for Petrol

Impact on other Industries/Sectors:

Oil Industry: As the prices of the petrol increases the private companies like Reliance Industries Limited(RIL) and Essar Oil Limites (EOL) will further re-open and expand its operations and compete with other state owned OMC's which will make the companies like Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) to loose its market share. 

Companies like RIL will lessen its oil exports and sell those in the domestic market itself since the market is more lucrative. 

Automobile and Banking Industry:

Since the petrol prices increases it has an direct Impact on sales of Cars and Motorcycles. A demand for High fuel efficiency bikes is expected.

As most of the cars and high end bikes are purchased on bank loans and more on recent increase in the banking base rate has already discouraged they buyer not to buy car, and this will further add an reason not to make a purchase.