Ever Rising Prices Of Fuels: Why Are Petrol Prices so High Today in India?

Must Read

What is Resale Price Maintenance?

RPM is a contractual arrangement between a manufacturer and distributor or wholesaler or any other party in the supply chain whereby the manufacturer imposes a resale price at which the distributor is required to sell the product. The concept itself is not illegal but is considered a violation of the Act under certain circumstances.

Three Years of the GST Regime: Has it been a Success Story?

Goods and Service Tax (GST) is considered as India’s biggest tax reform. Subsuming multiple central and state taxes, GST...

NEP 2020: India making a Headway Towards ‘Global Knowledge Superpower’

History of Indian Education System Pathshala, Maktabs, and Madrasas were regarded as elementary schools before British Rule. Education was imparted...

India’s Trade War with China and its Numerous Implications

Recently India witnessed various developments like that of the clash between the Indian and the Chinese forces on the...

What If China Boycotts India?

With growing border tensions and India's boycott movement, what if China boycotts India? India-China Retaliation 20 Indian soldiers were martyred in...

Telecom Industry Crisis: What If Vodafone Idea Limited Shuts Down?

The telecom industry faces a crisis due to huge AGR dues and longtime dispute. Under such circumstances, there is...

Follow us

A daily petrol price revision is a better proposition for many reasons. The first and the foremost is that it allows you to absorb the changes in daily petrol prices in India by a few paise. When petrol prices are revised or changed every fortnight, there is a significant variation in prices. This puts excellent extra pressure on the consumer. In India, petrol prices are revised by the oil marketing companies. They are based on international prices. So, when international crude oil prices gain, petrol prices in India move higher and so on. So, if crude oil prices in the international markets drop, we see a fall in daily or today’s petrol prices in India.

Factors affecting Today Petrol Price in India Cost of Crude Oil

A change in the price of crude oil in the international market affects the price of it in the domestic market. 

An increase in international demand, low production rate and any political unrest in the crude oil-producing countries of the world affect the petrol price. 

Increased Demand

Economic growth in India and other developing countries has led to an increased demand for petrol and other essential fuels. The number of people who own private vehicles has gone up in the recent past. This has contributed to an increase in demand for petrol in India. This resulted in a hike in petrol prices in India. 

Mismatch of Supply & Demand 

Oil refinery companies in India face problems to meet the demands of the market. This is due to the high cost of the input price of crude oil. They are thus resulting in less supply and more demand for petrol in the country—an increase in supply results in a decrease in the price of petrol and vice versa. Oil refining and marketing companies maintain crude oil inventory for six weeks. This also influences the price of petrol and petroleum products.  

Tax Rates

The prices of petrol and petroleum products vary according to local government policies. They impose taxes on fuels.  

When the government raises tax rates on fuels, the oil companies increase the price of petrol. This is to recover losses and maintain marginal profits in the oil business in India.  

Rupee to Dollar Exchange Rate

The rupee-dollar exchange rate is a significant factor that influences the price of petrol in India. Indian oil companies pay the oil imported in other countries’ dollars, but the expenses are in the rupee. So, when the price of the crude oil is in the fall and rupee is also weak against the dollar, it will reduce the gains. When the rupee strengthens against the dollar, and the price of crude oil is low, then the oil companies tend to gain. 

Logistics – Logistics is one of the significant factors in pricing retail fuel. Fuels transported to cities or regions farther from depots will be priced higher. This is less than the places nearer to the oil companies’ storage area.  

The Reason Behind the Change in the Prices of Petrol in Different Cities across India

This difference may be huge between cities that are far from each other. For example, the petrol price in Delhi is Rs.72.38 per litre on 24th January 2018, and the same petrol price is Rs. 80.25 per litre in Mumbai. Various taxes that impact petrol prices in India create fear. It is linked to the rise in petrol prices in India that seems to be never-ending.

Do we blame crude oil for these steep price hikes? Or, is the root cause something different? Well, the answer lies in the fact that crude oil continues to remain cheaper. It is the taxes levied by the governments which are responsible for such high rates. If studies are followed, it would be quite simple to associate the tax factor to the steep hike in petrol prices. Since May 2014, there has been a successive increase in excise duties.

Price Discrepancy Explained

 Data reveals that as of November 2014, there has been a 54 per cent increase in the excise duty on petrol. There is no downward curve in the price of petrol, despite a slash in the excise duty on petrol according to the Budget 2018. This is due to the introduction of Rs. 8 per litre as Road CSS. Daily price revision of petrol has begun from 16th June this year. It has observed that the price rise has happened. As petrol does not fall under GST, the price of it varies across states.

However, when considering the cost & freight prices along with the excise duty, dealer commission, applicable VAT, etc., it has found that the taxes on petrol sums up to be more than its actual cost. Although crude oil has become much cheaper compared to what it had been way back in 2014, it is the corporate taxes levied by the state and the central government that has caused the petrol prices to rise to what it had been in 2014, the highest till date. Despite promises from the government of rolling back the taxes, we are yet to see some positive efforts on this front. 

How Petrol Prices Today in India calculated? 

Petrol prices are a function of many things. Among these include the average of the India crude basket, which added a host of taxes including value-added tax and central excise. At the moment, we have the excise duty levied by the government, which is a staggering Rs 21 per litre. Should this reduction get some respite from a very high retail level of fuel and diesel? The value-added tax differs from state to state.

In cities like Mumbai and New Delhi, the value-added tax is very high, which has resulted in a high price for both petrol and diesel. In India, retail prices are determined by the oil marketing companies, bearing all these things in mind. So, the retail price of petrol in India today is determined by the Indian Oil Marketing Company, which is the largest oil marketing company in the country. For example, it releases the price of petrol every day at 6 am, wherein it is revised at the petrol pumps in the country. The private sector petrol pumps like Shell also determine their prices, though they tend to be higher than that of Indian Oil Company, BPCL and HPCL. 

Why are petrol prices today so high in India?

The fuel is one of the costliest when compared to our neighbouring countries. It recalled that the government earlier subsidized petrol and diesel prices. Nevertheless, the same was aligned with market prices. The government has over the years added to excise duty on petrol. It has made it expensive for consumers. The reason why excise is added before petrol is retailed is to mop-up more resources for social schemes.

However, this leaves the common burden with increased rates on the fuel. The government is looking at the possibility of reducing petrol prices over the longer term. However, it would need to find more longer-term mechanisms to do so. One of them is to add some taxes to Oil and Natural Gas Corporation, which is an oil exploration company. Nevertheless, these are all temporary measures, and one needs to find a more durable long-term solution.  

Impacts on the Economy

Impact on fiscal math

As a rule of the thumb, an increase of $10 per barrel in crude prices will lead to an increase of about Rs17,000 crore (or $2.5 billion at an exchange rate of 67/$) in fuel subsidies, equal to 0.09% of GDP. In the Union Budget 2018-19, the government had budgeted for petroleum subsidy of Rs25,000 crore, Like that in FY18.

Our calculations, Yet, suggest that fuel subsidy could be as high as Rs54,000 crore if crude price averages $65/barrel in FY19. Additionally, a cut of Re1 in excise duty for both petrol and diesel will lead to an annual revenue loss of Rs12,000-13,000 crore (or 0.065% of GDP). It remains to see if the excise duty cut can be resisted by the government, considering the general election is not so far now.

Impact on Current Account Deficit

An increase of $10 per barrel in crude oil prices will lead to an adverse impact of $10-11 billion on the current account deficit. There are two opposite forces at work in the current account deficit. Higher oil prices will push the import bill higher. Higher oil exports and better remittances will partly offset it. The latter will materialize since more than half of India’s remittances are reported to be channelled through the Gulf countries, which are likely to witness better economic conditions with higher oil prices.

An increase of $10 per barrel in crude prices will push the merchandise imports to bill up by about $20 billion. An increase of $6 billion in oil exports and $3-4 billion in workers’ remittances will partly reset it. 

Impact on Inflation 

With a weightage of only 2.4% in headline CPI, the adverse impact will depend on the extent to which higher crude oil prices passed on to the consumers. Considering the general election next year, it is not easy to envisage a hike in retail fuel prices. Thus, the direct impact on CPI inflation is likely to remain muted.

Libertatem.in is now on Telegram. Follow us for regular legal updates and judgements from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe for our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.



Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest News

WhatsApp Emails Delhi HC Judge Asking Her Not To Hear the Plea Challenging New Privacy Policy

The Delhi High Court raised strong objection to an E-mail sent by WhatsApp asking a judge not to hear the plea which challenges its new privacy policy. Justice Pratibha Singh said that the e-mail that was withdrawn later was totally unwarranted as she was anyway going to recuse from hearing the plea which was filed by Rohilla Chaitanya who contends that the new privacy policy of WhatsApp provides 360-degree access to a customer’s virtual activity and is against the fundamental right of privacy.

TRP Scam Case: Bombay HC Extends Protection To Arnab Goswami and Other Employees Till the Next Hearing

On Friday, the Bombay High court extended the protection that was given, to Republic TV’s Editor in Chief Arnab Goswami and other employees of ARG Outlier Media Private Limited till January 29th in the alleged case of Television Rating Point manipulation. A status report was submitted by the police to the division bench of Justices S.S.Shinde and Manish Pitale by the Police on the ongoing case.

Plea Seeks FIR Against Maharashtra Minister Dhananjay Munde in Bombay HC for False Info

A plea has been filed in Bombay High Court seeking an FIR against Maharashtra minister Dhananjay Munde who is undergoing times of trouble due to his extra-marital affair. Recently, an FIR had been lodged against Munde by a woman, accusing him of raping her sister. Munde clarified that he was actually in a relationship with that woman and had two children. He accused the two women of blackmailing him.

Writ Petition for Compensation Accepted by Calcutta High Court 

Introduction The Petitioner Purna Ch. Biswas filed a Writ Petition with the complaint that their claims for a higher quantum of compensation have not yet...

No Members Could Be Disqualified Without Authorisation by Political Party: Gujarat High Court

Excerpt The dispute application no.7 of 2020 filed by respondent no.2 before designated authority. Thereafter the designated authority order dated 28.10.2020 disqualified the petitioner and...

Delhi High Court Directs Delhi Jal Board To Make Supply of Potable Drinking Water

The High Court of Delhi in the matter of Delhi Sainik Cooperation Housing Ltd. v. Union of India & Ors held that right to...

Punjab & Haryana High Court Orders Security To BJP Leader Alleged for Not Supporting Farmers Protest

The Order had come in the form of a Writ Petition filed by Tikshan Sood under Article 226 of the Constitution. The petition before...

Lahore High Court Outlaws Two-Finger Virginity Test

The Lahore High Court in Pakistan has outlawed the use and conduct of virginity tests, namely, the use of the “two-finger” virginity test and...

London Court Rejects Assange’s Extradition – What Happens Now? 

Earlier last week, District Judge Vanessa Baraitser, sitting in the Westminster Magistrates’ Court denied the Government of the U.S.A.'s request to the U.K. to...

Calcutta High Court Decides in Favor of Contractor as He Accidentally Pays an Excessively High Amount

Introduction The present writ petition has been filed for a writ in the nature of mandamus commanding the Respondents to revoke the Petitioner’s offer as...

More Articles Like This

- Advertisement -