The price of petrol is regulated in both India and Pakistan. It is sold at a price fixed by the governments of the two countries. In the following table a simple comparison has been made to demonstrate the differences and the economic effects of petrol pricing in the two countries. There may be some minor differences, which need to be ignored to emphasise the facts of the matter.
In India, prices differ from state to state. There is no Inland Freight Equalization Margin (IFEM), which is added to prices in Pakistan to keep them uniform throughout the country. The price of petrol in Dehli has been taken as the base as this is the lowest price in the country.
In Dehli the price of petrol is INR 97 equivalent to 1.16 USD per litre versus PKR 290 equivalent to 1.07 USD across Pakistan. The upfront position seems to suggest that petrol is ‘expensive’ in India in comparison to Pakistan.
The primary issue in this table that requires consideration is the substantial difference in the cost of petroleum or ex-refinery price. In India, it is INR 47 versus PKR 218 in Pakistan. This is an aspect that needs to be examined. The price when converted into USD comes to 56 cents in India versus 76 cents in Pakistan.
| Component | India(1) INR | Pakistan(2) PKR | INR converted into PKR Difference between the at conversion rate 1 PKR =3.43 INR | Difference between the Indian and Pakistani cost, duties and sales price converted in PKR |
|---|---|---|---|---|
| USD/PKR-USD/INR Cost of product after processing in saleable form. | Rs 83 | Rs 285 | 3.43 times | - |
| Effectively Ex-refinery price(3) | Rs 47 | Rs 218 | 161 | 57 |
| Taxes, duties and Petroleum levy | 36 | 55 | 123 | 68 |
| Dealers commission | 04 | 13 | 14 | 01 |
| Buffer for inflation | 10 | - | 34 | - |
| IFEM | - | 04 | - | - |
| Total price per litre | 97(4) | 290 | 332 | 42 |
| Petrol price in USD | $ 1.16 | $ 1.07 | - | US 9 cent |
| Taxes plus buffer in India as a percentage of total sale price | 47% | 20% | - | 27% |
This difference of 20 cents is not readily understandable. In an overall context, this is an important facet of Pakistan’s energy economics.
A petroleum industry expert has explained to this author that Indians have received discounts of up to 30% on their purchases of Russian crude that they have been using for decades and have refineries that are designed to process the Russian crude. Furthermore, he said, Pakistan’s crude procurement price from the Gulf is higher for the reason that it buys on a deferred payment basis.
In this author’s view if the prices on deferred payment are higher by the sum referred above, then there is effectively no benefit to Pakistan and that difference is being paid by way of a deemed interest.
Whatever may be the reason, the difference of over Rs 50 per litre is a substantial sum and there is a dire need to analyse it. We may need cheaper oil from Saudi Arabia and Kuwait instead of loans. If the value of total imports is accounted for, it means we are spending around $3.78 billion more on imports than Indians on account of pricing difference. This amount has been calculated on a consumption of 489,000 barrels per day at a price of $ 81 per barrel and the difference of 27% in in retail prices.
The second astonishing aspect is substantial recovery of taxes from petroleum by Indians against Pakistanis. Indians are collecting 47% taxes on each litre sold; whereas, Pakistan only collects 20% tax. In other words, if Indians are selling at $1.16 per litre, then their government is receiving around 50 cents per litre on consumption.
This adds to their government’s revenues and balances their fiscal account. In Pakistan, we live with a meagre 20% tax on petrol and the position is so precarious that there is no possibility of increase in taxes despite IMF’s pressure on the government to increase Petroleum Levy (PL) on POL products.
This difference is the main reason for the present economic chaos in Pakistan where the public complains about the increase in petroleum prices despite the fact that such prices are actually lower in real terms when compared with those in India.
PL is another misnomer in Pakistan. It is simply a duty. We have segregated this amount from taxes and levies on account of our basis of allocation of revenues and considerations of sharing of revenues with provinces in the federal divisible pool.
The question whether or not the prices in India are higher or lower is a subjective one. The reliable indices prepared by an international organisation reflects that Consumer Prices in Pakistan are 23.4% ‘lower’ than in India (other than rent); however, Local Purchasing Power in Pakistan is 64.4% lower than in India. This means an average Pakistani has around 50 cents’ buying power as against one dollar of an Indian’s. In other words, petrol is substantially more expensive in Pakistan as compared to India.
There is another statistic that is extremely important. This is the comparative price over the period of five years. Average price in 2017 was around PkR 80 per litre when the Crude was at 57 $ per barrel. Now it is around PKR 290 per litre when the Crude is around 75 dollar per barrel. The increase in prices is almost over 3 times, which reflects that this hike is largely on account of depreciating US$/PKR parity. It was 107 in 2017 and is around 285 now.
An almost threefold increase. This also exhibits that in the past, petroleum prices were directly or indirectly being subsidised Another revealing fact is the total consumption of petrol / diesel in India and Pakistan. India’s is almost 10 times of our consumption.
In April 2023, petroleum products’ consumption in India was of 5,041 thousand barrels per day. Pakistan’s was reported at 489 thousand barrel/Day in December 2022. If that is placed in relation to population then per head consumption in India is almost twice of what is per head in Pakistan. This shows their industrial and agricultural use much higher than ours.
These facts reveal that Pakistan needs to overhaul its economics in the petroleum sector. If the national economy metrics are to be strategized, then ‘energy’ has to be at the top. There is no reason for the starting point for the computation of petrol prices to be higher in Pakistan than India. The nation has to be told that like most of our sectors we have not invested in refineries and we rely more on import of refined products rather than crude oil.
There is another dynamic of the petroleum sector in Pakistan. Iranian origin diesel is openly available, especially in Balochistan, at a price of Rs 220 per litre. The original cost is around Rs 100 per litre whereas 120 is the cost of smuggling.
Petrol and diesel are openly available at dispensers operating in remote places and transporters make use of it. One of the people involved in the transport business said that if the transporters do not use this smuggled petroleum products available at cheap prices then they are not able to meet their expenses. This is one of the reasons why the transport sector is not part of corporate or documented sector.
The purpose of this article is to initiate a debate on the major issues confronting the national economy and the centrality of the energy sector (power and fuel). These are issues that have compromised Pakistan’s economic performance due to which we have landed ourselves in dire economic straits. The politics of patronage and rampant corruption are definitely the reasons behind our predicament. This article will be followed by a comparative study of energy prices in India and Pakistan.
