Chandigarh: With Petrol price touching Rs 80 (Rs 79.62 exactly) per litre on September 18 in Mumbai, the arithmetic behind pricing of petrol and diesel in India got more twisted than ever. On the same day in Chandigarh, petrol was priced at Rs 70.65 per litre and diesel at Rs 59.75. This in the face of the fact that crude oil prices in the international market have reduced by almost 2/3rd since May 2014 when the NDA Government took office.
Whereas the crude oil price per barrel ( one barrel = 159 litres) was $108 in March 2014, it was pegged at $54.2 per barrel on September 11, 2017. But this sharp decline in international oil prices does not reflect in the fuel prices in India as price of Petrol in Delhi was almost the same on September 11, 2017 as it was in April 2014 (Rs 70 per litre).
| Calculation of Fuel Prices in India | ||
| Parameter | Petrol Price | Diesel Price Calculation |
| International Price of Crude Oil with Ocean Freight (as on 24th August 2017) | 50$ or Rs 3210 per Barrel | 50$ or Rs 3210 per Barrel |
| 1 Barrel of Crude Oil | 159 Litres | 159 Litres |
| Crude Oil – Cost per Litre | Rs 20.19 per Litre | Rs 20.19 per Litre |
| Basic OMC (Oil Marketing Company) Cost Calculation | ||
| Entry Tax, Refinery Processing, Landing Cost & Other Operational Costs along with Margins | Rs 6.03 per Litre | Rs 6.38 per Litre |
| OMC Margin, Transportation, Freight cost | Rs 3.31 per Litre | Rs 2.55 per Litre |
| Basic Cost of Fuel after Refining Cost | Rs 29.53 per Litre | Rs 29.12 per Litre |
| Additional: Excise Duty as Charged by Central Government | Rs 21.48 / Litre on Petrol | Rs 17.33 / Lit on Diesel |
| Pricing Charged to Dealers before VAT | Rs 51.01 per Litre | Rs 46.45 per Litre |
| Calculating Dealer Retail Price – Base Location Delhi | ||
| Commission to Petrol Pump Dealers | Rs 3.23 per Litre | Rs 2.17 per Litre |
| Fuel Cost Before VAT (rounded off for approximation) | Rs 54.24 per Litre | Rs 48.62 per Litre |
| Additional:VAT (Varies from State to State – 27% on Petrol & 16.75% on Diesel + 25p as Pollution Cess with Surcharge) | Rs 14.64 / Litre on Petrol | Rs 8.44 / Litre on Diesel |
| Final Retail Price as on 24th August 2017 -(calculation) | Rs 68.88 per Litre | Rs 57.06 per Litre |
Perhaps, a comparison between the price of petrol in India and our neighbouring countries will help you to understand this better. Whereas the price of petrol in India (Delhi) was 69.26 per litre in September 2017, the same was Rs 40.82 in Pakistan, Rs 49.80 in Sri Lanka, and Rs 61.88 in Nepal. How is it that fuel prices are much lower in countries that are less developed than India?
The prices of fuel in India depend primarily on these factors: international prices of crude, exchange rate of rupee, taxes and the demand-supply situation for fuel in India. Taking a look at these factors, we find that while the international prices of crude have reduced by more than half in the last three years, the decline has been more than offset by a sharp increase in taxes. The rupee has strengthened against the dollar during this period and the fuel basked for India has remained largely consistent.
Taxes levied by the Central government and the state governments (largely Central taxes) now account for 52 per cent of the price for Petrol and 45 percent for Diesel (August 2017).
| Tax Component in Fuel Price (August 2017) | ||
| Tax Paid for Obtaining Fuel | Total Cost of Fuel | |
| Petrol in Delhi | Rs 36.12 per Litre (52%) | Rs 68.88 per Litre |
| Diesel in Delhi | Rs 25.77 per Litre (45%) | Rs 57.06 per Litre |
| Difference in Tax Rates (Nov 2014 and Aug 2017) | ||
| Parameter | Tax in November 2014 | Tax in August 2017 |
| Excise Duty on Petrol | Rs 9.20 per Litre | Rs 21.48 per Litre |
| Excise Duty on Diesel | Rs 3.46 per Litre | Rs 17.33 per Litre |
| VAT on Basic Price on Petrol | 20% on Basic Price | 27% on Basic Price |
| VAT on Basic Price on Diesel | 12.5% on Basic Price | 16.75% on Diesel + 25p Cess |
The increase in prices has accentuated after the government ushered the daily revision of prices in June 2017. Since then prices have been increased on an average between 2 paise and 7 paise per day.
It is clear from the above that the NDA government has been relentless when it comes increase in taxes on fuel. The government tends to justify this by saying that the revenues thus generated are used towards developmental activities both at the National as well as the State levels. But has the government done anything to decrease the inefficiencies or the wasteful expenditure at its end? Has it taken any concrete measures to cut down on corruption in government projects, which is corroding the benefits of government spending? The fact remains that very little has been done towards this end.
With its emphasis on increasing revenues through increased taxation the government has adopted a lopsided approach to the problem, which is causing more misery to the lives of the common man. The increased fuel prices have resulted in a spike in wholesale price inflation, which stood at 3.24 percent in August.