India has highest cost for LPG and third highest for petrol in world in terms of PPP

Fuel prices were kept under lock due to the elections in key states such as UP by the Central Government, but as soon as they were won by the BJP fuel prices have been on an increase daily pinching the pockets of the common man in a high inflation environment.

When compared with other countries in terms of PPP-Purchasing Power Parity; India has the highest cost for LPG in the world and for petrol the third-highest cost. Comparisons made in terms of PPP are more efficient than at the nominal exchange rate. India has the eighth highest cost of diesel in the world.

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 vary widely the cost of petrol is just a fraction of their daily income for westerners but it is 1/4th of daily income for an average India.

The common reason given by the Finance Minister and other leaders from the BJP is that external factors such as the Ukraine crisis have made it impossible to keep fuel prices low. The go-to reason has been a disruption in the global supply chain.

Nirmala Sitharaman, the Finance Minister even invoked Nehru to defend the increase in fuel and energy prices. Sitharaman read in Parliament Nehru’s speech from the 1950s, where the former prime minister had blamed the Korean War for inflation in the country. She argued that if Nehru could blame the war in Korea for the rise in prices in the 1950s when India was not as well connected with the world as now, why would the Russia-Ukraine war not impact prices today.

The maths behind the comparison ( Source: Times Of India ):

Price of petrol in India: Rs 120/litre.
Price in USD at nominal exchange rate: $1.58/litre (75.84 is the exchange rate )

However, this is not an accurate comparison as a dollar can buy a lot less in the American market than what 75.84 can buy in India. The average price of potatoes in the USA is 2$ per KG which translates to Rs 150 through which 7 KG of potatoes can be bought in India.

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 Rs 22.6 in 2022 and not Rs 75.84.

Converting the price of petrol into international dollars according to IMF’s 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. The price in the West varies from Int $1.2 in the United States and Int $1.5 in Japan to ran Int $25 in Germany and ran Int $2.7 in Spain, all of which are significantly less than the price in India.

A similar calculation can be done for the price of LPG and Diesel in terms of PPP