According to the purchasing power of currencies in their domestic market, the per litre cost of LPG in India is the world’s highest, the price of petrol the third-highest and diesel the world’s eighth most expensive.
Purchasing power vs nominal exchange
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. According to IMF, the PPP or international dollar has averaged Rs 22.6 in 2022 and not Rs 75.84.
The math
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.
Converted at the nominal exchange rate, this translates into Rs 147, which could buy more than 7 kg of potatoes in March in India.
Now the pinch
Converting the price of petrol in international dollars, the comparable price of petrol in India is 5.2 international dollars per litre, the world’s third-highest after Sudan (Int $8) and Laos (Int $5.6).
For LPG, prices in India at Int $3.5 a litre are the world’s highest. India is followed by Turkey, Fiji, Moldova and Ukraine. In Switzerland, France, Canada and the UK, LPG is priced at about Int $1 per litre. For diesel, the price in India at Int $4.6 is the world’s eighth highest.
Purchasing power vs nominal exchange
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. According to IMF, the PPP or international dollar has averaged Rs 22.6 in 2022 and not Rs 75.84.
The math
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.
Converted at the nominal exchange rate, this translates into Rs 147, which could buy more than 7 kg of potatoes in March in India.
Now the pinch
Converting the price of petrol in international dollars, the comparable price of petrol in India is 5.2 international dollars per litre, the world’s third-highest after Sudan (Int $8) and Laos (Int $5.6).
For LPG, prices in India at Int $3.5 a litre are the world’s highest. India is followed by Turkey, Fiji, Moldova and Ukraine. In Switzerland, France, Canada and the UK, LPG is priced at about Int $1 per litre. For diesel, the price in India at Int $4.6 is the world’s eighth highest.
