Harish Jharia

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27 May 2012

Sky-Rocketing Petrol Prices In India Reaching The All-Time High At Rs 77.54 Per Litre

Serpentine queues at petrol pumps on the eve of petrol price hike 

© Harish Jharia 

Finance and economics are the subjects that I usually do not understand. I always avoided trying to understand how the foreign exchange rates between Indian Rupee and US Dollar are specified. Frequently increasing petrol prices are also similar calculations that I always avoided to learn or even understand. 

Nevertheless, the recent price rise of Rs 7 plus made me motivated to learn some basic idea about the pricing of petrol in India. I learnt it by a simple comparison between the petrol prices in Ashburn, VA, USA and that in Indian cities like Delhi, Kolkata and Chennai. 

To my utter surprise, I found that the price per litre of this essential commodity in the United States continues to be around  $ 0.9854 unit currency of the US; whereas, the price of the same commodity in India is far more than Rs 70 unit currency of India.  The ratio of  0.9854 : 70 does not deserve any comparison.

My study goes as follows…

Ashburn, VA, USA Gas price $ 3.73 per gallon 
@ US price, the rate per litre would be $ 0.9854 
The price of 1 litre of petrol in US would have been Rs 54.197
Rate per Litre: India (Delhi) price in Rs 73.14 – US price in Rs 54.197 = Difference in Rs 18.943

New Delhi, Delhi, India Gas price Rs 73.14 per litre 
@ India price, the rate per gallon would be Rs 276.835
The price of 1 gallon of petrol in US would have been Rs 205.15
Rate per Gallon: India (Delhi) price in Rs 276.835 – US price in Rs 205.15 = Difference in Rs 71.685

Conversion rates: 
1 Gallon = 3.785 Litre
Rs 55 = 1 US Dollar 
Reference: VirginiaGasPrices.com… 
URL: http://www.virginiagasprices.com/index.aspx?area=Ashburn

The above calculation shows that even if we convert US Dollars @ Rs 55 the difference between the prices of 1 litre of petrol in US and Delhi, India is definitely Rs 19/- approx. This difference in Kolkata and Chennai, India would be Rs 23.343.

But, this is not the real difference; the real difference is rather between US Unit Currency 0.9854 and India Unit currency 77.54 = Unit currency 76.5546. We should rather think practical and accept the fact that the difference in the prices of petrol between US and India is of 76.60 unit currency per litre. 

We should review the basic economic policies followed in respect of petrol prices; because, petrol is the life line, in real sense, of any modern country. If we look at the government taxation for petrol in India, we will find that it is almost 100% of the basic price of Rs 42.57 at which the Indian Government supply petrol to the dealers. Against this basic price the taxation, including the dealer’s profit, comes out to be Rs 34.97. Please see the break-up in the successive lines. 

It is reported that the approximate breakup of the pricing of petrol in Kolkata and Chennai, India is as follows:
Basic Price of Petrol - Rs 42.57
42% Government taxes – Rs 33.47
Dealers profit of Rs 1.50 
Total Price of Petrol - Rs  77.54 (Kolkata and Chennai, India)


It is evidently clear that the sky-rocking prices of petrol in India are basically due to the arbitrary imposition of taxes on this essential commodity. Being one of the most essential commodities, petrol should have been considered for special consideration by the government at the time of imposing taxes. Petrol should not be used as a revenue generating commodity. 

In spite of the above fact the Indian government has decontrolled petrol and left the commodity to the petroleum companies to market it at their convenience. Nevertheless, the government has not reduces the taxes on the same and continued to be a silent spectator watching Rs 42.57 worth of petrol being sold at an unbelievable price of Rs 77.54 per litre. 

I appeal to the Government of India and to all the State Governments in India to reduce taxes on petrol in order to bring it to a price less than Rs 50/- per litre.


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