Prime Minister Shehbaz Sharif has sanctioned reductions in petrol and high-speed diesel prices by Rs6.17 and Rs10.86 per litre, respectively, effective for the next fortnight

On Wednesday, Prime Minister Shehbaz Sharif authorized a substantial reduction in fuel prices, including a Rs6.17 per litre cut in petrol and a Rs10.86 per litre cut in high-speed diesel (HSD) for the upcoming fortnight. The new rates, as announced by the state broadcaster PTV, are Rs269.43 per litre for petrol and Rs272.77 per litre for HSD.

The price of kerosene oil also saw a reduction, falling to Rs177.39 after a Rs6.32 cut, while light diesel oil prices decreased to Rs160.53, reflecting a Rs5.72 reduction.

The announcement of these price changes came through PTV’s social media channel X, rather than a formal notification from the Finance Division, which typically handles such updates.

The magnitude of the price cuts exceeded initial projections. Analysts had forecasted a Rs3 decrease in petrol and Rs8.50 reduction in HSD prices, based on recent trends in the international market. The international prices for these fuels had recently declined, with petrol dropping from $89.5 to $87.5 per barrel and HSD from $96.93 to $94 per barrel over the last fortnight. Additionally, the import premium on petrol and HSD also fell, further justifying the reduction in local prices.

In contrast to the recent increase in fuel prices, which saw petrol and diesel rise by Rs17.44 and Rs15.74 per litre respectively during June and July, the current reductions offer some relief to consumers. Between May 1 and June 15, the prices had previously decreased by Rs35 and Rs22 per litre, respectively.

Despite these reductions, the government’s petroleum levy remains substantial. The maximum limit of the petroleum levy has been raised to Rs70 per litre in the latest Finance Bill, aiming to collect Rs1.28 trillion in the next fiscal year, up from Rs960 billion collected last year. This increase reflects a larger revenue target compared to previous fiscal goals.

The current tax structure imposes about Rs78 per litre on both petrol and HSD, including a Rs60 per litre petroleum development levy. Although the GST on petroleum products is currently zero, the petroleum development levy significantly affects retail prices and, consequently, consumer expenses.

Analysis:

Political: The reduction in fuel prices carries notable political implications. Prime Minister Shehbaz Sharif’s decision to cut prices could be seen as a strategic move to alleviate public discontent and bolster support ahead of upcoming political events. Lower fuel prices generally have a positive impact on the electorate, especially during times of economic strain, and this move could be aimed at reinforcing the government’s commitment to managing living costs.

Social: From a social perspective, the price cuts are likely to be welcomed by the public, offering temporary relief from rising fuel costs. Reduced fuel prices can lower the cost of transportation and goods, which is crucial for the daily lives of many individuals. This adjustment may also influence social sentiment, easing frustrations related to recent price hikes and demonstrating the government’s responsiveness to public concerns.

Economic: Economically, the reduction in fuel prices could have mixed effects. While lower prices can reduce transportation and logistics costs, potentially leading to decreased prices for goods and services, the government’s increased levy on petroleum products might offset some of these benefits. The revenue targets set through the petroleum levy suggest a reliance on high fuel taxes to balance fiscal needs, which could continue to exert financial pressure on consumers despite the recent price cuts.

Racial: This issue does not directly address racial concerns; however, the impact of fuel price changes can have disparate effects across different demographic groups. Lower fuel costs generally benefit lower-income households, who spend a larger proportion of their income on transportation, compared to higher-income groups.

Gender: Similarly, gender considerations are not explicitly addressed in this case. However, the impact of fuel price changes may affect different genders in varied ways. For instance, women, who often manage household budgets, may experience direct benefits from reduced transportation costs.