Record production in the US, weakened demand from the Eurozone and
emerging economies like China and Brazil, and Iran's entry into the
international market have effectively slashed the price of crude oil for
India, from $106 per barrel in July 2014 to $26 in January 2016 - a 75
percent drop over 15 months.
So, why are you not seeing evidence of this price-cut at your local petrol and diesel station?
The
answer: As global crude prices reach a 11-year low, the centre and
state governments steadily increase excise duties and value-added tax,
shoring up their revenues and keeping fuel prices high for retail
consumers.
Although India imports more than 80 percent
of its fuel requirements, which means declining global prices should,
theoretically, have seen sharp declines in retail petrol and diesel
prices, Indian consumers of petrol and diesel now pay about double the
global rate.
A series of taxes, oil-company profits and other commissions
Retail prices of petrol and diesel prices in three states - Assam,
Uttar Pradesh and Gujarat - show a variation of less than 10 percent
during the current financial year, 2015-16, according to an IndiaSpend
analysis.
For instance, the petrol price in UP rose Rs.2 per litre, when global oil price halved over the same period.
Indian prices stay high because oil marketing companies (OMCs), such as Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Reliance Industries
Ltd., add their margins, the central government adds excise, state
governments add their own (value-added) taxes, and the dealers (petrol
pumps) get their commission.
The total of these is the retail price of the fuel you pay.
Excise hiked five times in three months; diesel duty hiked 140 percent
The
excise duty on petrol and diesel has been hiked five times over the
last three months, increasing the excise duty on petrol by 34%. On
diesel, excise duty has increased by 140 percent.
The
price at which OMCs sell petrol to dealers (petrol pumps) has been
halved in two years. Over the same period, retail petrol prices have
come down only by 15 percent.
The value-added taxes
imposed by states have more or less remained the same, but excise duties
- both basic and additional - imposed by the centre have doubled
between 2014 and 2016.
You pay more taxes on diesel and petrol than the price of fuels
The
addition of central taxes on diesel is higher than those on petrol.
Central taxes per litre of diesel rose to four times its value in April
2014 - from Rs 4.52 per litre to Rs 17.33 per litre in February 2016.
Retail consumers pay more tax on petrol and diesel than its actual price.
Of
the price you pay for a litre of petrol, 57 percent goes to the
government as tax. Of the Rs 44 per litre of diesel, 55 percent is tax.
If
the excise duties on diesel had not been increased these two years,
diesel would have cost Rs.32 per litre today, other factors remaining
the same.
The direct effect of oil prices on cost of transportation of goods and thus consumer inflation
has been demonstrated by research from Integrated Research and Action
for Development (an autonomous research institute), as journalist and
economist Swaminathan Anklesaria Aiyar wrote in his blog.
Research on inflation in Turkey and Sri Lanka has underlined the effect of fuel prices on inflation.
Lower fuel prices can keep inflation in check, according to a report in Business Standard.
(In
arrangement with IndiaSpend.org, a data-driven, non-profit, public
interest journalism platform, where Abhishek Waghmare is a policy
analyst. The views expressed are those of IndiaSpend. The author can be
contacted at respond@indiaspend.or
