Some have speculated that the government might compromise on its fuel deregulation policy, which allows oil marketing companies OMCs to price their output freely. Not surprisingly, the shares of the government-owned OMCs have witnessed a sharp fall in recent weeks.
Further, to the extent rising fuel prices have to do with the decreasing supply in the world market, it has a negative impact on economic growth. The price of domestic petrol and diesel going forward is likely to depend on the price of crude oil in the international market as well as the policy preferences of the government as it heads into a series of elections in and The oil bulls believe that OPEC countries will drive oil prices even higher in order to meet their increasing revenue needs.
The sceptics of the recent rally, on the other hand, expect American shale oil producers to rein in any further rise in oil prices quite soon. If international crude oil prices fail to stabilise or fall, the government may decide to look at either reducing taxes on these fuels or forcing OMCs to incur losses by selling at lower prices. Support quality journalism - Subscribe to The Hindu Digital.
Essay Todays Rising Gas Prices - Words | Bartleby
Prashanth J. What is it? The consumer encountered the highest ever rate of petrol in the month of October At that period the Indian rupees was not faring well and the international crude producers, even the OPEC had cut down the supplies creating an artificial demand. On 4th October, , the petrol rates were the highest of all time.
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The consumers even experienced fluctuations in the price of petrol in the month of October. Primarily, there two causes by which the prices of petrol in India has encountered a great hike. The first one is the price of the crude oil which are decided by the global suppliers of the oil and the second one is the rate of taxes and the level of taxes imposed on the petrol. In , under the UPA government, the price of petrol escalated to Rs. At that time, the price of the crude oil by the global suppliers was higher than what they are offering today and the government managed the price by imposing fewer rates of taxes on the petrol.
The increase of price which are encountered today are thus a result of higher rates of taxes impose by the government.
Therefore, the opposition also accuses the government for inflicting higher rates of taxes of the people for the purpose of filling their treasury. Therefore, both the internal and the external factors are responsible for the hike in petrol prices. Tax is an income for the government; this amount is in turn spent on the development of the citizen. Petrol and other fuels also come under the ambit of the taxation system of the country. The taxes levied by the centre and the state governments have a significant role in raising the overall retail fuel prices.
A consumer pays a Fuel duty along with the petrol, diesel and other fuels. The rate a consumer pay also depends upon the type of fuel. For Petrol, diesel, Biodiesel and Bioethanol, the rate of taxation is The higher rates of tax imposed by the government are burning the pockets of the consumers. In the rate of taxation was But according to the data available, the price of petrol was maintained much efficiently by the Modi government.
The era of steep rise in the price of fuel as seen at the time of Congress rule came to a little relief. But it important to understand that though the price were increasing at a minimum rate, heavy excise duties were charged. Today the price of crude oil is lesser than that encountered under the Congress, but the present government is charging high rates of duties for petrol. Excise duty on petrol in November was Rs. The cost of production has risen because of the increase in fuel prices , and the producers of many products charge consumers a greater price.
As a consequence, the inflation increases that makes life tougher for consumers around the globe. Moreover, it has devastating effect on emerging economies where the wages are flat and the spending is rising at a rapid pace. In this case, the gap between rich and poor is increasing.
Rising Gas Prices
The poverty figures have increased for last 3 years. Emerging economies have insufficient funds to offer the entrepreneurs in the shape of subsidy due to this expanded gap.
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Therefore, it become advantageous to a entrepreneurs who run the manufacturing level of his country. The increase in fuel prices has also devastating influence on Pakistan, Ethiopia. The higher cost of manufacturing will result in inflation. The producer will sell at greater prices when the income is not rising relative to the consumption the consumer would purchase small amount of goods, and the other stocks will change in to idle.
As a result, the corporate sector will be worse-off. Producers will sell the stock at lesser price again to cover the cost that result in deflation.
Hence, it discourages investors and investment will decline. The rising oil prices since , leaded to the global economic crisis in As a result, the world GDP growth experienced a decrease from Due to the expectations that is related to OPEC supply cuts, political tensions in Venezuela and strict stocks increased international crude oil and good prices in March , market conditions are more volatile than usual, United States were trying to increase crude oil prices.
Greater fuel prices lead to higher unemployment rates and compounding budget deficit issues in many OECD and other oil importing nations. The negative economic influence of higher oil prices on oil importing poor nations is more dangerous than for OECD countries. These economies extremely need imported oil , and the energy is utilised ineffectively. Developing nations find it difficult to adjust the financial turmoil damaged by higher oil import costs. This is due to the economic process yielded by greater oil export earnings in OPEC and other exporting nations would be more than outweighed by the negative impact of higher prices on economy in the oil importing nations.
Terasa , Company's big losses , lack of consumer confidence , wrong policy reactions and greater gas prices will strengthen these economic impacts in the medium term. If the fuel prices remain higher, the economic situation of fuel importing nations will be at risk. Due to the past oil price shocks , the total macroeconomic damage occurred, the profits from the price decline to the economies of oil importing nations keep changing significantly. However, there were crucial impacts: economic growth declined significantly in most oil importing nations in the 2 years following the price increases of and Most of the big economic recessions in the United States , Europe and the Pacific since 's have been occurred before sudden rises in the price of crude oil even though other factors were important in some situations.
According to the UK National Statistics, UK factory gate prices increased at their highest rate for 9 months in November because of the higher fuel prices. Inflation accelerated from November to January because of the rising fuel prices , and increase in value added tax to Less productive capacity left more idle due to the recession than the Bank of England predicted which means that inflationary pressures might occur again quickly. This is one of the monetary policy that the government conducted to increase demand and stimulate the economic growth. Unemployment is increasing in US. As a result, US is trying to develop renewable local bio fuels to reduce their dependency on the fuel.
The higher fuel prices result in inflation, risen input costs, reduced investment in oil-importing states. The tax revenues decline and the budget deficit rises because of the rigidities in government spending that increases interest rates. An oil price increase results in upward pressure on nominal wage levels due to resistance to real decreases in wages. Wage pressures and declined demand cause higher unemployment rates in the short run. Moreover, lower consumer spending affect all business , especially small business are in bad position due to the declined consumer spending.
Higher interest rates decline the disposable income of consumers due to the higher debt service costs. While consumers increase their expenditure on servicing debt , they do not have enough money to purchase other products. Net oil importing countries encounter a deterioration in their balance of payments, and reduces exchange rates. As a consequence , oil importing countries imports will be more expensive whereas exports are less priceless, resulting in a decline in real national income.
If there is no change in central bank and government monetary policies , the dollar might increase while oil-producing nations demand for dollar denominated multinational reserve asset increase. The economic reaction to greater inflation , higher unemployment , less exchange rates, less real output also affects the overall influence on the economy for the long-term. Rising fuel prices lead to high shipping costs.
As a result, shipping costs indicates higher taxes that makes them more expensive for foods.