Over the last few days, the retail prices of petrol and diesel have
touched an all-time high. In Delhi, petrol was selling at 74.6/litre on
April 25, 2018, while diesel was at 66/litre.
are used as raw materials in various sectors and industries such as
transport and petrochemicals. These products may also be used in
factories to operate machinery or generators. Any fluctuation in the
price of petrol and diesel impacts the production and transport costs of
various items. When compared to other neighbouring countries, India
has the highest prices for petrol and diesel.
How is the price of petrol and diesel fixed?
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.
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 break-up of retail prices of petrol and diesel in
Delhi on April 25, 2018 can be found below. As seen in the table, over
50% of the retail price of petrol comprises central and states taxes and
the dealer’s commission. In case of diesel, this amount is close to
Does India produce enough petroleum to support domestic consumption?
imports 84% of the petroleum products consumed in the country. This
implies that any change in the global prices of crude oil has a
significant impact on the domestic price of petroleum products. In
2000-01, net import of petroleum products constituted 75% of the total
consumption in the country. This increased to 95% in 2016-17. The
figure below shows the amount of petroleum products consumed in the
country, and the share of imports.
What has been the global trend in crude oil prices? How has this impacted prices in India?
the last five years, the global price of crude oil (Indian basket) has
come down from USD 110 in January 2013 to USD 64 in March 2018, having
touched a low of USD 28 in January 2016.
While there has been a
42% drop in the price of global crude over this five-period, the retail
price of petrol in India has increased by 8%. During this period, the
retail price of diesel increased by 33%. The two figures below show the
trend in prices of global crude oil and retail price of petrol and
diesel in India, over the last five years.
How has the excise duty on petrol and diesel changed over the last few years?
the Constitution, the central government has the powers to tax the
production of petroleum products, while states have the power to tax
their sale. Petroleum has been kept outside the purview of the Goods
and Services Tax (GST), till the GST Council decides.
years, the central government has used taxes to prevent sharp
fluctuations in the retail price of diesel and petrol. In the past,
when global crude oil prices have increased, duties have been cut.
Since 2014, as global crude oil prices declined, excise duties have been
a consequence of the increase in duties, the central government’s
revenue from excise on petrol and diesel increased annually at a rate of
46% between 2013-14 and 2016-17. During the same period, the total
sales tax collections of states (from petrol and diesel) increased
annually by 9%. The figure below shows the trend in overall collections
of the central and state governments from petroleum (including receipts
from taxes, royalties, and dividends).
(The writer is an analyst at PRS Legislative Research)