The international crude oil prices have declined substantially since 2014. In spite of this, the prices of petrol and diesel in India have increased.
(Read: Fall in International Crude Prices Explained)
In March 2014, when the crude oil price was above $ 100 per barrel, the retail price of petrol was Rs. 73.16 per litre in Delhi. In September 2017, when the crude oil price has declined to $ 50 per barrel, the retail price of petrol has remained nearly the same at Rs. 70.30
How is the price of petrol and diesel determined by the oil marketing companies (OMCs)?
The Government deregulated the petrol price in 2010 and the diesel price in 2014. It allowed OMCs ( like Indian Oil Corporation and Bharat Petroleum) to determine the prices of these fuels based on market considerations. The determinants of fuel prices in the Indian context are:
- International crude oil prices: Crude oil is a raw material in the production of petrol and diesel.
- Currency exchange rates: If rupee appreciates, it makes import of crude oil cheaper. Hence, the price of fuel should decrease.
The prices were revised fortnightly based on the above factors.
There was considerable political interference in the prices even after deregulation.
In June 2017, dynamic daily price model was introduced. As per this model, prices began to be revised daily to make it more aligned to the market forces.
2. Why is the petrol price high in India despite the decline in international oil prices?
As a matter of fact, the crude oil prices started declining since 2014.
But, the Government increased the taxes on production (excise duty) and sale (VAT) of petrol and diesel over the last two years to increase its revenue, to fund developmental activities like infrastructure.
Petrol and diesel are outside the ambit of GST and hence Excise and VAT are levied on it by the Central Government and the state Government respectively. The VAT rate differs from state to state while the Excise levied by the Centre is uniform across all states.
3. What is the price break-up of petrol price in Delhi?
According to data released by the Indian Oil Corporation, petrol costs only Rs 27.77 per litre at the refineries. The refineries sell it to the dealers at Rs 30.48. But, the dealers sell it to the final consumers at Rs 70.52 a litre. The final price includes Excise Duty (Rs.21.48), VAT (Rs.14.99) and dealer’s commission (Rs.3.57) (As of 21st Sept 2017).
To conclude, the Government is not in a position to cut excise duty to reduce oil prices because the Indian economy has slowed down and it needs funds to boost growth.