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Should petrol, diesel prices be cut, or should govt keep crude benefit? Oil veteran solves tough choice

Irrespective of the hope that low fuel prices will boost demand, as it depends on the economic resurgence, the government should pass on the benefits of low oil prices to the consumers.

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Oil refining and marketing companies are keeping wider margins on retail fuel sales, while the government is raising taxes on petrol and diesel.

Even as international crude oil prices fall to record lows, even slipping below zero for a short while, petrol and diesel prices in India still hold near the pre-coronavirus levels, as oil marketing companies and the government try to offset revenue losses with the help of surplus earned from oil. Oil refining and marketing companies are keeping wider margins on retail fuel sales, while the government is raising taxes on petrol and diesel. With people wondering if during these times, should the government keep the benefit of cheaper crude oil with itself, or pass it on to the consumers, an oil industry veteran gives an answer to the tough choice.

Irrespective of the hope that low fuel prices will boost demand, as it depends on the economic resurgence, the government should pass on the benefits of low oil prices to the consumers, Vikram S Mehta, Chairman of Brookings India, and Senior Fellow, Brookings Institution, told The Indian Express in an interview. It would look “politically foolish” if the government continues to charge the same price when the global price has collapsed, he added. Vikram Mehta, a veteran oil industry professional, last served as the chairman of the Shell Group of Companies in India. Crude oil prices in the international market have fallen to record lows. Brent crude oil prices slightly recovered to $22 per barrel today, after falling to $16 per barrel yesterday. The price fall is due to low demand due to travel restrictions across the globe, and oversupply in the oil market. 

Also Read: Why petrol, diesel prices are not falling despite crude oil prices crashing below zero | EXPLAINED

Some estimates show oil demand may fall by 30 million barrels per day, which is as huge as the entire production of OPEC. This estimate also raises questions on the extent of good that OPEC+ nations’ decision to cut the supply of 10 million barrels a day will do. Vikram Mehta said that the deal between Saudi and Russia is not making any difference at a time when demand is so low. He highlighted that one of the reasons for the companies restricting themselves from cutting supplies is that if the supply is reduced significantly, some fields and reservoirs could get permanently damaged.

Meanwhile, as crude oil prices in the international market are touching new lows every day, the viability of renewable energy is endangered as conventional fuel, which is more efficient, has become much cheaper too. It’s going to be complicated by the price of oil, of course, but more by supply chain issues, Vikram S Mehta said. However, switching on to conventional energy may look like a more budget-friendly and feasible option now, but the advantage of using renewable energy in the long-term is indisputable. You may say to forget about renewables in the short-term but after a few years down the line, you will find yourself living in a hell-hole, Vikram S Mehta added.

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