Consecutive hikes in petrol and diesel prices are pinching the pockets of the common man in India. Petrol rates in India are revised on a daily basis. Prices are revised at 06:00 a.m. every day. This makes sure that even a minute’s variation in global oil prices can be transmitted to fuel users and dealers. Price of fuel includes excise duty, value added tax (VAT), and dealer commission. VAT varies from state to state. After adding excise duty, dealer commission and VAT, the retail selling price of petrol gets nearly doubled. Various factors impact the price of fuel. These include rupee to US dollar exchange rate, cost of crude oil, global cues, demand for fuel, and so on. When international crude oil prices gain, prices in India move higher.
History
Historically, the price of petrol and diesel in India was regulated, i.e. the government was involved in the deciding the retail price. The government deregulated the pricing of petrol in 2010 and diesel in 2014. This allowed oil marketing companies to determine the price of these products, and revise them every fortnight.
Starting June 16, 2017, prices for petrol and diesel are revised on a daily basis. This was done to with the idea that daily revision will reduce the volatility in retail prices, and protect the consumer against sharp fluctuations.
The current petrol prices are significantly higher than prices in FY14 when the average price of India’s crude basket was USD 105.5 per barrel. In June 2013, when India’s average crude basket was at USD 101 per barrel, petrol was retailing at ₹ 63.09 per litre. Increasing central and state taxes on petrol and diesel are the key reason for the prices of petrol and diesel being at record highs. The price of crude oil is only 3.5% higher than at the beginning of 2020 before the COVID-19 pandemic led to a sharp fall in the demand for crude oil. Taxes account for 58.6% of the petrol price in Delhi. The base price decreased by 27% from May 2014 to May 2021. In the same period, taxes, duties and commissions recorded a 139% increase with the Centre’s tax share rising by 216%.
Impact of rising crude oil prices
The price of crude oil has risen sharply in 2021 on the back of a recovery in global demand as the world economy recovers from the COVID-19 pandemic. Rising crude oil prices have contributed to petrol and diesel prices rising to record high levels across the country. The prices of petroleum products have gone up. The main reason is that the price of crude oil has gone over USD 70 (per barrel) in the international market. This negatively impacts consumers here, as India imports 80 per cent of its oil requirement.
Impact of domestic taxes
Petrol and diesel are not part of GST and attract excise duties from the Centre and VAT from states that make them one of the highest-taxed commodities in the country. In the last few years, these taxes have been raised on several occasions making the fuels one of the highest taxed in the world. Between FY15 and FY20, for example, excise duties were raised a record 12 times and lowered only twice. The central government had in 2020 hiked the excise duty on petrol by ₹ 13 per litre and on diesel by about ₹ 16 per litre to shore up revenues as the pandemic led to a sharp fall in economic activity. Central levies account for 71.8 per cent of total taxes on diesel and 60.1 per cent of total taxes on diesel in the national capital.
Conclusion
In the summer of 2020, as the country went into a lockdown, the government once again turned to oil to shore up its revenues. Global crude prices turned negative for the first time in the US in April 2020. The price of the Indian basket also declined to a low of just $19.9 per barrel but consumers in India, locked in their homes, never got the benefit of such rock-bottom prices.
