New Delhi: In terms of purchasing power parity, India has the world’s highest per-litre cost of LPG, the third-highest cost of petrol, and the eighth-highest cost of diesel in their domestic market.
External factors like higher prices in other countries, and a bigger increase in pricing elsewhere have all been cited as reasons for the price increase. So, why does it appear that energy prices are pinching us more? It is because price comparisons based on the nominal exchange rate (the rate at which currencies are traded on the international market) obscure the fact that various currencies have distinct purchasing capabilities in their respective markets. A litre of fuel is also a fraction of an average Westerner’s daily salary, a quarter of an average Indian’s daily income, and more than the average daily income in Burundi. The price increase has a wide range of effects, as one might expect.
How did we arrive at these figures? At a nominal currency rate of Rs 75.84 per dollar, the price of fuel is Rs 120 per litre, which translates to $1.58. In the American economy, however, a dollar can buy a lot less than Rs 75.84 in India. In March, for example, the average price of a kilo of potato in the United States was $1.94. (globalproductprices.com). This amounts to Rs 147 at the current exchange rate, which could buy more than 7 kilos of potatoes in India in March (prices of ministry of consumer affairs).
That’s why economists use the PPP dollar, or international dollar, to compare domestic pricing in different nations. It takes into account how much each currency can buy in its own market. According to the International Monetary Fund, the PPP or international dollar averaged Rs 22.6 in 2022, not Rs 75.84.
According to IMF estimates, the comparable price of petrol in India is 5.2 international dollars per litre, the world’s third-highest behind Sudan (Int $8) and Laos (Int $5.6) among the 157 nations for which pricing data (globalpetrolprices.com) and IMF’s PPP conversion rates are available. Albania is the only other country with a price higher than Int $5. The price in the West ranges from Int $1.2 in the United States and Int $1.5 in Japan to Int $2.5 in Germany and Int $2.7 in Spain, all of which are significantly less than the price in India.
LPG prices are provided for 54 nations, with India’s at Int $3.5 per litre being the highest in the world. Turkey, Fiji, Moldova, and Ukraine follow India. In comparison, LPG costs around Int $1 per litre in Switzerland, France, Canada, and the United Kingdom.
For diesel, data is available for 156 nations, with India’s price at Int $4.6 being the fourth highest in the globe. Sudan has the highest price at Int $7.7, followed by Albania, Turkey, Myanmar, Georgia, Bhutan, and Laos, a list that includes no significant world economies. Diesel prices follow the same pattern as gasoline, with costs in the West significantly cheaper than in South Asia and Africa.
Affordability is a significant aspect that impacts how much it pinches, regardless of price. In a high-income country, a greater price has a far less impact on an individual’s wallet than in a low-income country. As a result, we compared the price of a litre of gasoline, diesel, and LPG with the IMF’s daily estimate of a country’s GDP per capita. Petrol costs range from 0.6 percent of an average American’s daily income to 2.2 percent of an average Spaniard’s daily income. On the other hand, they account for 23.5 percent of an average Indian’s daily income, 23.8 percent for a typical Pakistani, 38.2 percent for a typical Nepali, and a startling 181.8 percent for a typical Burundi resident. Diesel and LPG are following a similar pattern.