Data | An accrued price: What determines the high costs of retail fuel in India?
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Since 2014, the Union government has allowed retail fuel prices to increase whenever global crude prices rose, but whenever crude prices fell, it increased the Centre’s excise duty, disconnecting the trends in crude and retail prices.

March 25, 2022 10:47 pm | Updated April 28, 2022 08:00 am IST

While persistently high excise duties has helped rake in the money for the Centre, this has made fuel prices unaffordable for most Indians. File image.

While persistently high excise duties has helped rake in the money for the Centre, this has made fuel prices unaffordable for most Indians. File image. | Photo Credit: PTI

In theory, the retail petrol prices in India is directly linked to the crude oil prices in the international market. But, in reality, the two prices do not mimic each other. Since 2014, the government has allowed the retail prices to increase whenever the crude prices rise. However, the reverse did not happen. Whenever the crude prices crashed, the government increased the Centre’s excise duty in proportion to the drop, disconnecting the trends in crude and retail prices. Moreover, the government informally asked the oil companies not to increase the prices if polls are approaching, which decoupled the two prices even further. While persistently high excise duties has helped rake in the money for the Centre, this has made fuel prices unaffordable for most Indians. Currently, in many States, Indians pay ₹50 as tax for every ₹100 they pay for petrol

Diverging trends

The chart shows the retail petrol price in Delhi (in ₹) and the crude oil price (Indian basket in $ per barrel) between March 2014 and March 2022

 

Chart appears incomplete? Click to remove AMP mode

Taxing times

The chart shows the % share of the Centre’s excise duty component, the % of State’s VAT component and the % share of base price in the retail price of petrol in Delhi, between March 2014 and March 2021

 

Raking in 

The left axis in the chart shows the revenue earned by the Centre through excise duty and State’s VAT tax on petrol and petroleum products. The right axis shows the petrol consumption in India in metric tonnes. The Centre collected ₹3.7 lakh crore in FY21 despite the sharp decrease in petrol consumption that year due to movement restrictions

 

Affordability check 

In the vertical axis, the % of daily income spent by an average citizen to fill one litre of petrol, across countries, is plotted. On the horizontal axis, the price of one litre of petrol in ₹ equivalent across various countries on Thursday is plotted. For instance, in India, an average citizen spends 24.3% of their daily income to fill one litre of petrol, and it costs ₹102.9 per litre. Only in Pakistan is petrol less affordable than India among select countries

 

Freeze out

The graph shows the retail petrol price in Delhi annotated with dates of State and national polls. After Diwali in November 2021, for 137 days, the retail price was unmoved given the elections in five States: U.P., Punjab, Goa, Manipur and Uttarakhand. A similar freeze can also be observed before State polls in Assam, Kerala, Puducherry, T.N. and W.B in 2021

 

Many States, many taxes

As the VAT tax rate varies for each State, the amount paid for petrol also varies widely. In Rajasthan, Madhya Pradesh, Maharashtra, Telangana, Andhra Pradesh, Kerala and Bihar, consumers pay at least ₹50 as tax (Centre + State) for every ₹100 worth of petrol they purchase

 

Source: PPAC, IMF, Bloomberg, Globalpetrolprices.com, Statsofindia.in

Also read: Crude oil nears $100; petrol, diesel price increase coming after elections

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