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Govt of India Fails to understand the economics behind low crude price.

In July 2004, the rate of crude oil was $36.05 per barrel and US Dollar exchange rate was Rs 44 per Dollar. At that time, per litre petrol cost to consumer was Rs 36.81 in New Delhi and per litre crude cost to the country was Rs 13.3/. Today, the per litre petrol cost is Rs 70.04 in New Delhi, and the irony is that crude costs us lesser in comparison to 2004 at $33.99 per barrel and US Dollar exchange rate is Rs 74.30 per dollar. With this calculation, per litre crude costs to the country is Rs 21.18, due to the higher dollar exchange rate in comparison to 2004, crude is costlier by Rs 7.88 per litre but the price of petrol to the consumer has almost doubled. If we add additional Rs 10 per litre for adjusting the 13 years inflation of refinery cost, dealer commission, transportation cost still petrol today is at least Rs 15.35 per litre costlier than it should have been.

Now, if the Govt of India passes on this Rs 15.35 to consumers by reducing the prices this will have a direct impact on the savings of individuals. Approximately, there will be an increase of Rs 71000 crores in liquidity, by direct saving on fuel cost and public transport cost, which will further impact on peoples spending power. With this lower fuel price, there will be an additional demand arising for the automobile industry, as more and more people will be buying new vehicles. Currently, the automobile and auto component industry is under distress, and with this boost in demand, it will certainly help them regain the momentum.

Note- One Barrel contains 119.24 Litres…

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