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6) Fuel (oil)  pricing in this country is more a political statement than an economic exercise. Critically analyze.(250 words)

Topic– Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

6) Fuel (oil)  pricing in this country is more a political statement than an economic exercise. Critically analyze.(250 words)

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Why this question

Oil prices in India have been all time high, dragging inflation and inflicting huge expenditure pressure on the common man. It is essential to understand how oil prices are decided in India and whether there is any need of a change in the regime.

Directive word

Critically analyze-here we  have to examine methodically the structure or nature of the topic by separating it into component parts, and present them as a whole in a summary.

Key demand of the question.

The question wants us to delve deep into the oil pricing regime in India and discuss in detail as to how it is more a political statement rather than an economic exercise.Based on our discussion we have to form a substantial opinion on the issue as to how should we proceed in this regard.

Structure of the answer

Introduction- Mention about the recent spike in global oil prices which has followed a global slump in oil prices.

Body-

  • Discuss the oil pricing regime in the country. Mention that Fuel price were deregulated in 2010 and 2014. The great global oil price slump of 2014 pushed prices below the levels set by the Indian government. So when India abolished price controls that year, local prices actually fell. The government made the most of oil’s continued tailspin by adding a tax on oil rather than passing on the entire reduction to consumers; In India, fuel is priced as if it, and not crude oil, is imported. Though, in reality, India is a net exporter of fuel, with the export value in 2017–18 being almost 32 times the import value of fuel, thanks to the expansion in refinery capacity. But, premised on the misplaced assumption, the calculation of Refinery Gate Price (RGP) and, hence, losses/profits of oil manufacturing companies/refiners assign higher weightage to the import parity price of fuel.
  • Discuss its impact on the economy and the people briefly. E.g whenever international oil prices rise, the oil manufacturers in India make a windfall gain etc. Also discuss the impact on inflation and rise in prices and cost of living etc.

Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue. E.g India could reinstate its formula for subsidizing the fuels by asking upstream companies to share a part of the burden. Currently, prices of gasoline and diesel are fixed through a complex formula, which is not fully understood. It is based on what the government terms “trade parity price,” or the estimated price of the fuel if it were to be imported and exported in the ratio of 80:20. For now, the government is said to have asked the state-owned oil marketing companies to absorb some of the pain and not pass higher costs on to consumers.