Arguments for the price rise include external conditions, higher prices in other countries and a higher increase in prices elsewhere. Why then do energy prices seem to be pinching us more? Because price comparisons at the nominal exchange rate (the rate at which currencies are traded in the international market) conceal the fact that different currencies have different purchasing powers in their own markets. Also, income levels are so widely different across countries that a litre of petrol is just a fraction of the daily income for an average Westerner, one-fourth of daily income for an average Indian and more than the average daily income in Burundi. Understandably the impact of the price rise varies significantly.
How did we reach these numbers? The price of petrol at Rs 120 per litre translates into $1.58 at the nominal exchange rate of Rs 75.84 per dollar. However, a dollar can actually buy a lot less in the American market than Rs 75.84 can in India. For instance, the average price of a kilo of potato was $1.94 in March in the US (globalproductprices.com). Converted at the nominal exchange rate, this translates into Rs 147, which could buy more than 7 kilos of potatoes in March in India (prices of ministry of consumer affairs).
That’s why a fairer comparison of domestic prices in different countries is by using what economists call the PPP dollar or international dollar, which takes account of how much each currency can buy in its own market. According to IMF, the PPP or international dollar has averaged Rs 22.6 in 2022 and not Rs 75.84.
Converting the price of petrol in international dollars according to IMF’s estimates, the comparable price of petrol in India works out at 5.2 international dollars per litre, the world’s third-highest after Sudan (Int $8) and Laos (Int $5.6) among 157 countries for which price data (globalpetrolprices.com), as well as IMF’s PPP conversion rates are available. The only other country to have a price higher than Int $5 is Albania. In the West, the price ranges from Int $1.2 in the US and Int $1.5 in Japan to Int $2.5 in Germany and Int $2.7 in Spain, all much lower than the price in India.
For LPG, the prices are available for 54 countries and among them, prices in India at Int $3.5 a litre are the world’s highest. India is followed by Turkey, Fiji, Moldova and Ukraine. In comparison, in Switzerland, France, Canada and the United Kingdom, LPG is priced at about Int $1 per litre.
For diesel, data is available for 156 countries and the price in India at Int $4.6 is the world’s eighth highest. The price at Int $7.7 is the highest in Sudan followed by Albania, Turkey, Myanmar, Georgia, Bhutan and Laos, a list that doesn’t include any major world economy. Diesel prices also follow the same trend as petrol and are far lower in the West than in South Asia and Africa.
Prices apart, affordability is a key factor that determines how much it pinches. A higher price has a much lower impact on an individual’s pockets in a high income country than in a low-income country. So, we compared the prices of a litre of petrol, diesel and LPG with the IMF’s estimate of a country’s GDP per capita at a daily level. Petrol prices range from 0.6% of the daily income of an average American to 2.2% of the daily income of an average person in Spain. On the other hand, they are 23.5% of the daily income of an average Indian, 23.8% for an average Pakistani, 38.2% for an average Nepali and a staggering 181.8% for an average person in Burundi. Diesel and LPG also show a similar trend (see graphic).