Edited by Abhinav Dev Gupta
Currently, as we all can see that all the major economies of the world are seeing some kind of lockdown measures in some way or another because of the ongoing COVID-19 crisis and due to which the demand for the crude oil is drying up. With more than two-thirds of the world’s population in lockdown, no one is driving, flying, or doing much, which led to a slump in demand for crude oil. The top three countries(USA, CHINA, INDIA) in the terms of oil consumption has shown a drastic decline in the demand of crude oil, for example, a recent data released by the US Government shows that the demand for gasoline has declined by about 30% from pre-corona crisis and the condition of India is more worse as it has seen a decline in 70% of its demand in April when compared to the demand in the same month last year. This decrease in the demand for oil has shaken all the major oil-exporting countries throughout the globe as the major source for their revenue was from the export of oil which has been severely affected and has led to a tussle between all the major oil-producing nation and they were unable to settle on any cut in their oil production which lead to a sudden fall in the prices of crude oil which was lowest in the last two decades in the international oil market. For a brief period, we were able to see the price of crude oil falling to zero or even negative and this all put this sector on the risk of even collapsing. The current situation is so bad that the reserves of all the oil refineries are almost full and there is little hope in demand of the oil getting revived.
HOW CURRENT SITUATION IS GOING TO AFFECT THE ECONOMICS OF THE DEVELOPING COUNTRIES LIKE INDIA?
Oil accounts for the major source of income of the Indian Government as it gets about 1/5th of its budget revenue through various taxes it has on petroleum products, so declining demand for oil is going to decrease the revenue for the government and putting a lot of pressure on its budget which is already not in good shape and facing a lot of burden due to ongoing COVID-19 crisis. So, to cope up with the situation of decline in revenue of the government due to decreasing demand government has been actively increasing the taxes on oil and which is very well supported by low oil prices in the global market.
Current low prices of crude oil is a kind of blessing for the government in such a bad condition as they can increase the taxes on the prices without significantly affecting the price of oil in the local market but some economist think that the decrease in the price of crude oil in international market should be directly transferred to common people as low oil prices help in keeping a check on inflation but the government has gone the other route by continuously increasing of excise duty on oil by the central government and also increase in the VAT by the state government so both state and central government are trying to increase their revenue. This won’t be giving any benefit to the government in the short run but if the oil prices remain in the same state as they are now in the international market then the government can get the benefit when the demand will increase.
In the past also the government had tried to take gains from the plummeting oil prices in between 2014-2016 and they were also successful in increasing their revenue through excise by almost double to 2,42,000 crores in the year 2016-17 from 99,000 crores in 2014-15. But this time there has been a significant decrease in the demand and the government won’t be able to make such gains but they are eying an additional revenue of about 1.6 lakhs crores by making the record increase in the excise on oil. As of date Government is charging about
32.98 rupees per litre for petrol and 31.83 rupees per litre for diesel through excise duty which was only 9.48 rupees per litre for petrol and 3.56 rupees per litre for diesel in the year 2014.
In India, the retail price of oil comprises the base price of the fuel, excise duty, VAT, marketing cost, margins, dealers commission, etc.