Are free COVID 19 vaccines driving up petrol and diesel prices?

Are free vaccines driving up petrol prices?

Fuel prices have once again risen and are now at historic highs. After a pause of a day, petrol prices have been hiked by 31 to 35 paise while diesel prices have been hiked by 26 to 30 paise on June 29th, 2021. This is the 32nd price hike within 2 months. With this increase, fuel prices in Delhi, Kolkata and Chennai are just shy of the ₹100 mark while in Mumbai, Hyderabad and Bangalore it has breached the ₹100 mark.

What constitutes petrol and diesel prices?

The price of fuel varies from state to state. This is primarily due to the levy of state taxes on fuel. The price of fuel is linked to the global oil prices.

As can be seen from the above graph, more than 50% of the fuel price is attributed to taxes. Surprisingly, crude oil price constitutes only 34% of the price of fuel. This implies that fluctuations in crude oil price should not be wildly swinging the prices of fuel.

Historical movement of crude oil price and petrol prices in India

We will have to look at a longer time frame to understand the historical movement of crude oil and fuel prices. This can help us truly appreciate the current scenario.

As can be seen from the above graph crude oil prices have been quite high between 2006-2014 and have fallen post 2014. However, until 2015 the price of petrol has never exceeded ₹80 per liter despite the crude oil price going as high as $140 per barrel. From 2015 onward, the price of petrol has steadily increased and been mostly higher than ₹80 despite lower crude oil prices. Another interesting point to note is that when crude oil was at a record high of $140 in 2008, petrol prices were at a low of ₹55/liter. Whereas in 2020, when the crude oil price hit it’s 15 year low of $45/barrel, the petrol prices were inching towards their all time high.

How does this impact you?

Well, fuel is what drives our lives. Without fuel we have nothing. An increase or decrease in fuel prices directly determines how much you shell out for essentials such as grocery. Rising prices increases the inflation rates.

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What is inflation?

Very simply put inflation is the decrease in purchasing power over time. Remember the times when your grandmom could go out with 50 bucks and return home with an entire month’s groceries. And now all you can get for 50 bucks is a loaf of bread. Well, my friend, that is inflation.

Cost of vaccinating India

India has a population of around 133 crores. Of this approximately 85 crore people will be eligible for receiving the vaccine. A rough estimate shows that the government would have to spend at least ₹65,000 crores to provide free vaccines to all.

But are the vaccines truly free of cost? Of course the government is not going to be printing money to meet this expense. And let’s remember that there is no such thing as a free lunch. The vaccines are indirectly going to be funded by tax payer’s money. Hike in fuel prices is one of the ways the government will be recovering a portion of this cost. Do not be surprised the next time you see petrol prices rising when the price of crude oil is falling.

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