Tamil Nadu -First state to cut petrol price by Rs. 3/litre

August 16, 2021

Tamil Nadu has become the first state in India to cut the petrol price in fiscal year 2021-22 by Rs 3/litre, providing a major relief to consumers.

Key Points

Price cut was announced by State Finance Minister Palanivel Thiagarajan during his budget speech on August 13 and it came into effect from August 14.
It is expected to cause a revenue loss of ₹1,160 crore for the state exchequer.

Background

Diesel and petrol prices in India have hit record highs. Government cites price rise in global crude oil by more than 50 percent as the reason for increasing prices in India.

Price dynamics in India

In India, the retail petrol and diesel prices are decontrolled and are linked to global crude oil prices. Thus, if crude prices decrease, retails prices should decrease too and vice versa.
But this does not happen on the ground because, oil price decontrol is a one-way process in India.
When global crude oil prices reduce, government starts charging fresh taxes and levies in order to earn extra revenues.
Thus, primary beneficiary of the mechanism of price decontrol is the government in India.

Impact on inflation

As per experts, impact of rising fuel inflation is counterbalanced by declining food inflation. However, consumers with higher expenditure on travel are highly affected by higher prices. It also impacts farmers who rely on diesel-powered irrigation system.