Petrol price in New Delhi is now retailing at Rs. 77.47, while it is Rs. 85.29 in Mumbai, whereas diesel being Rs. 72.96 in Mumbai and Rs. 68.53 in New Delhi.
Petrol prices in many Indian cities, hit historic highs. There are worries that such gains in the fuel, would spur inflation, which is not good news for Indians. The rupee (Rs. 67.77 = US$1as on 25th May 2018) too has been falling, thus raising fresh worries for fuel prices.
Voices against the Centre’s taxation on petrol and diesel are gaining currency as fuel prices continued to climb for the 13th day on a stretch. Senior Congress leader and former Union Finance Minister P Chidambaram claimed that the central government could have reduced petrol prices by as much as Rs. 25 per litre if it wanted to pass on the benefits of cheaper crude oil to the common people. The Bharatiya Janata Party (BJP) on its part has blamed the Congress-led UPA governments for exponentially increasing central excise duty in its 10-year-rule.
THE CAPITAL POST decided to analyze the scenario. For the sake of comparing how petrol prices have fared in the last 14 years, we are taking Delhi as a case study.
Have a look on the chart.
This means the price of petrol witnessed a rise of nearly Rs. 38 in the 10 years under the UPA – an average annual increase of Rs. 3.80 per year.
Fuel prices are primarily dependent on two factors: our indigenous bank of crude oil, the taxes levied by the central and state governments and the price of crude oil in the international market. While the taxes are decided by the central and state governments, the price of crude oil is dependent on the international market and currency rates over which they have little say. A fair assessment of increasing fuel prices in the country can be done only when we compare the changes in tax rates vis-à-vis the changes in crude oil prices throughout the past 14 years. In our analysis, we have used the average crude oil price and retail price of petrol in Delhi over the past 14 years. This takes into account the value of Indian rupee versus the US dollar.
Retail price of petrol continued to increase even as the price of crude oil reduced after clocking a high in 2011. During the past 14 years, the price of crude oil was the lowest in 2004 when the UPA came to power. Back then, crude oil was around USD 25 a barrel and petrol price in Delhi was Rs. 39 per litre.
The present crude oil price is nearly 25 per cent lower than the 2011 rate. The data also shows that crude oil prices started decreasing after 2014 but the retail prices have not witnessed a similar trend. In fact, in 2015-16, crude oil hit a low of USD 46 per barrel but price of petrol still continued to increase.
The fact that retail prices have not decreased despite decrease in crude oil outlines the fact that the Centre has not reduced the tax rates on petrol to pass on the benefit to the common people.
In the four years, petrol prices have perpetually increased as the Modi government constantly increased the central excise duty for petrol from Rs. 9.48 per litre in 2014 to a peak of Rs. 21.48 in January 2016.
TAX SUMMARY
In summation, in the past four years, the excise duty has been increased by 126 per cent in case of petrol and 330 per cent for diesel. Thus, the claim that petrol prices rose by just 90 paise per year during the past four years is true to some extent but doesn’t give the full picture.
However, it is not only the Modi-led central government that is to be blamed for increasing fuel prices in the country. The state governments are equally responsible. If the state governments are so concerned about the people, they can reduce the prices of petrol and diesel by reducing the VAT and other taxes levied by them. However, it is apparent that neither the state governments nor the Centre is interested in doing this as an increased tax rate ensures that the governments’ coffers are filled.
“Dear PM, Glad to see you accept the @imVkohli fitness challenge. Here’s one from me: Reduce Fuel prices or the Congress will do a nationwide agitation and force you to do so. I look forward to your response. #FuelChallenge”–RAHUL GANDHI
“Karnataka finishes voting, FUEL prices rise to a 4 yr. high! The Key Principle of Modinomics: fool as many people as you can, as often as you can. #PeTrolled ”– RAHUL GANDHI
“It is possible to cut upto Rs. 25 per litre, but the government will not. They will cheat the people by cutting price by Rs. 1 or 2 per litre of petrol. Bonanza to central government is Rs. 25 on every litre of petrol. This money rightfully belongs to the average consumer. Central government saves Rs. 15 on every litre of petrol due to fall in crude oil prices. Central government puts additional tax of Rs. 10 on every litre of petrol. Why doesn’t the BJP government bring petroleum products under GST?”–P. CHIDAMBARAM
“Bringing petrol and diesel under GST will lower prices. A task force is already working on reducing the fuel prices. Maharashtra has already given its consent for it”– DEVENDRA FADNAVIS
“Petrol and diesel should have been brought under the Goods and Services Tax. I asked officials during a presentation if we bring fuel prices under GST will it benefit the states or not. They said ‘yes’, they will benefit”–NITIN GADKARI
“Petroleum Ministry believes that petroleum products should be brought under the purview of GST (commodity and service tax) to reduce the prices of petrol and diesel. Until that time, we are considering the ways of quick solutions”–DHARMENDRA PRADHAN
India, with oil imports hitting a record to 4.3 Mbpd (million barrels per day) in 2017, is now the fourth biggest oil importer in the world! For 2018, a total global demand of some 99.1 million barrels per day has been predicted by experts. Of that amount, almost one third goes to the Asian-Pacific regions. And with India satisfying its 80% fuel needs from import, all brows rise automatically, as the warning meter already hits a red-danger!
INCREASING DEMAND OF OIL IN INDIA
Oil demand in India rose 10.3 percent in the first month of 2018, the fourth straight monthly gain.
Total oil consumption expanded at the fastest pace in 14 months to 16.9 million tons from 15.3 million a year ago, according to the oil ministry’s Petroleum Planning Planning and Analysis Cell. Improvement in road freight transport following the stabilization of the new nationwide sales tax and growing use of cars and scooters boosted the consumption.
Gain in Diesel Usage–14.5%
6.65 million tons
Rise in Gasoline Consumpotion –15.6%
2.09 million tons
Increase in Liquefied Petroleum Gas Demand–4.6%
2.08 million tons
Rise in Petroleum Coke Usage–9.2%
1.98 million tons
Net Oil Imports
Doubled over 12 years
1.3mbd 2.6mbd
2000 2012
India’s Oil Production (2000-2012)
772,000bpd–990,000bpd.
India’s Proven Oil Reserves (2013)
5.48 billion barrels
The country imports most of the crude oil from the Middle East (Saudi Arabia, Iraq, Iran and Venezuela) and has the fifth biggest refinery capacity in the world.
2035 SCENARIO
The International Energy Agency sees India to be the center of global oil demand growth as India’s oil consumption growth will be the fastest among all major economies by 2035, with expanding oil consumption 18.6 million tons in the month.
“We project that India’s energy consumption grows the fastest among all major economies by 2035. As a result, the country remains import dependent despite increases in production”–EXPERTS
While energy consumption will grow by 4.2% per annum—faster than all major economies in the world— India’s consumption growth of fossil fuels would be the largest in the world. India, it said, will overtake China as the largest growth market for energy in volume terms by 2030. Its share of global energy demand increases to 9% by 2035, accounting for the second largest share among the BRIC countries with China at 26%, Russia at 4% and Brazil at 2%.
The nation expects to double gasoline and diesel consumption by that year even as it aspires to sell only electric vehicles in 2030. The two fuels account for more than half of India’s oil usage.
The Society of Indian Automobile Manufacturers expects India’s passenger vehicles sales to expand 9 percent in the year ending March. The new goods and services tax does not include oil products at present.
| States with Highest VAT on Petrol | VAT Duty | States / UT with Lowest
VAT on Petrol |
VAT Duty | |
| Maharashtra – Mumbai | 47.6% | Andaman & Nicobar Island | 6.0% | |
| MP | 38.8% | Goa | 17.0% | |
| Punjab | 36.0% | Arunachal Pradesh, Tripura, Mizoram | 20.0% | |
| Telangana | 35.2% | Meghalya | 22.4% | |
| Kerala | 34.0% | Nagaland | 24.6% | |
| Tamil Nadu | 34.0% | Manipur | 25.0% | |
| Rajasthan | 32.9% | Orissa, Bihar | 26.0% | |
| Assam | 32.6% | Haryana | 26.2% | |
| Uttarakhand | 32.5% | West Bengal | 26.9% | |
| Uttar Pradesh | 32.4% | Himachal Pradesh | 27.0% | |
| Jharkhand | 31.0% | Delhi | 27% + Cess | |
| Karnataka | 30% | Chattisgarh, Gujarat | 28.9% | |
| J&K | 29.5% |
FACTORS AFFECTING PETROL PRICE IN INDIA
- Change in the price of crude oil in the international market
- Economic growth in India and the increase in the number of private vehicles
- Oil refinery companies in India face problem to meet the demands of the market due to the high cost of input price of crude oil thus resulting in less supply and more demand for petrol
- Increasing tax rates levied by the government
- Rupee to Dollar Exchange Rate
- Logistics: Petrol and diesel transported to longer distances to regions farther from depots will be priced higher than the places nearer to the oil companies storage area
TAX MONSTERS
Do we blame crude oil for these steep prices hikes? Or, is the root cause something different? Well, the answer lies in the fact that while crude oil continues to fluctuate from being $72 per Barrel on 20th May 2018 to $70 per Barrel as of 6pm, 25th May 2018, it is the taxes levied by the state and central governments which are actually responsible.
In spite of the government slashing excise duty on petrol according to the Budget 2018, yet there seems to be no downward curve when the price of petrol is taken into consideration. This is due to the introduction of Rs. 8 per litre as Road Cess.
Daily price revision of petrol has begun from 16th June last year. It has been observed that the price rise has happened gradually. As petrol does not fall under GST, the price of it varies across states. However, when considering the cost & freight prices along with the excise duty, dealer commission, applicable VAT, etc, it has been found that the taxes on petrol sums up to be more than its actual cost.
INTERNATIONAL OUTLOOK
With 3.3% of the world’s total consumption of $40 trillion, India is the world’s third-largest oil consumer with Iran being its third-largest oil supplier after Iraq and Saudi Arabia.
India pays its third largest oil supplier in Euros using European banking channels and unless these are blocked, imports will continue, officials opine. But the ending deal could well lead to oil prices skyrocketing, which will hit India. The World Bank had projected a 20% jump in global prices of energy commodities that is crude oil, gas and coal, this year. All of this will in turn pressure the rupee, push inflation higher and send GDP lower. Let’s see how.
US–IRAN NUCLEAR DEAL EFFECT
CHABAHAR PORT INVESTMENTS
India has committed more than $500 million to develop the strategically located Iranian port of Chabahar. Actually, the port, located on the Gulf of Oman, only 85km from China’s Gwadar port in Pakistan, is important for India as it links energy-rich Iran to war-torn Afghanistan. As a result, US sanctions on Iran will have a direct impact on India’s economic interests and hegemonic aspirations in the region.
HOW WOULD THE PORT BENEFIT?
The Chabahar port will cut transport costs/time for Indian goods, including oil and other hydrocarbon products, by a third. The port is likely to ramp up trade among India, Afghanistan and Iran in the wake of Pakistan denying transit access to New Delhi for trade with the two countries. The first phase of the Chabahar port was inaugurated in December last year. In February, India and Iran signed a pact that gives New Delhi operational control of a part of port for 18 months. But, this project is itself in limbo as US withdraws from the Iran Nuclear deal leaving another burden on India at this front.
DO YOU KNOW?
The Petrol been sold in India from End 2017 has 10% of Ethanol been Mixed with Petrol. Ethanol is a natural Fuel (as made from Sugar and starch) and very well can be mixed with Petrol without any changes and also has no PM (Particulate Material) Pollution.
However – the catch is–Ethanol is priced at just Rs 40.85 per Litre, but is mixed in Petrol and the given rate is combined rate as been sold to consumer
It means that if your car go for petrol Tank Full of say 30 Litres – then in actual your car will get 27 Litre Petrol and 3 Litre Ethanol – but the rate charged would be the price of Petrol only – means you have to pay price of 30 Litre Petrol.
Also – there is slight a caution to Car Owners that they should ensure that Water does not come in contact with Petrol by any chance during Car Wash or Fuel Refill. If you going for Fuel refill during Monsoon and a small contact of water will lead Ethanol to break as separate layer against Petrol and this will end up giving Jerks making the car difficult to even start with.
WHY DON’T WE SEARCH WITHIN?
In 1990, India imported 37% of oil it consumed while in 2012 it imported a staggering 82% of consumed oil, pushing the import bill to $120 billion and making it the energy source with the highest import dependency. The scenario today also remains more or less same with India’s percentage share being around 80%.
But, India does not have to remain dependent on foreign energy commodities. An estimated 75% of India’s sedimentary basins have yet to be adequately explored. Of the 26 known sedimentary basins in the country, only seven are currently producing oil and gas.
TILL DATE..
69 trillion cubic feet –proven and probable recoverable gas reserves
Only 42 trillion cubic feet–developed and currently under production
18 trillion cubic feet reserves– yet to be produced
27 trillion cubic feet reserves –yet to be developed
According to an analysis:
12 basins across India &
64 trillion cubic feet–risked recoverable resources–yet to be found
India holds:
91 trillion cubic feet –recoverable gas reserves
63 trillion cubic feet – recoverable shale gas
India’s energy future remains hidden in unexplored, difficult-to-access basins across the country. Technological advancements make exploration and discovery of these reserves possible; with further incentive from India to take these exploratory risks, there is an incredible opportunity to narrow India’s energy imbalance and reinvest the nearly $330,000,000 spent daily on foreign energy sources.
Since, oil and natural gas also play a critical role in deciding the inflation rate, the rising prices for these energy commodities have long been a point of contention in Indian politics.
HOW GST WOULD EFFECT?
CURRENT SCENARIO:
| Petrol Price * | Diesel Price Calculation * | |
| International Price of Crude Oil with Ocean Freight (as on 20th May 2018) | 72.5 $ or Rs. 4930 per Barrel | 72.5 $ or Rs. 4930 per Barrel |
| 1 Barrel of Crude Oil | 159 Litre | 159 Litre |
| Crude Oil – Cost per Litre | Rs. 31 per Litre | Rs. 31 per Litre |
| Basic OMC Cost Calculation * | ||
| Entry Tax, Refinery Processing, Landing Cost & Other Operational Costs along with Margins | Rs. 2.62 per Litre | Rs. 5.91 per Litre |
| OMC Margin, Transportation, Freight cost | Rs. 3.31 per Litre | Rs. 2.87 per Litre |
| Basic Cost of Fuel after Refining Cost | Rs. 36.93 per Litre | Rs. 39.78 per Litre |
| Additional: Excise Duty + Road Cess as Charged by Central Government | Rs. 19.48 / Litre on Petrol | Rs. 15.33 / Lit on Diesel |
| Pricing Charged to Dealers before VAT | Rs. 56.41 per Litre | Rs. 55.11 per Litre |
| Calculating Dealer Retail Price – Base Location Delhi | ||
| Commission to Petrol Pump Dealers | Rs. 3.62 per Litre | Rs. 2.52 per Litre |
| Fuel Cost Before VAT (rounded off for approximation) | Rs. 60.03 per Litre | Rs. 57.63 per Litre |
| Additional:VAT (Varies from State to State – 27% on Petrol & 16.75% on Diesel + 25p as Pollution Cess with Surcharge) | Rs. 16.21 / Lit on Petrol | Rs. 9.91 / Litre on Diesel |
| Final Retail Price as on 20th May 2018 -(calculation) | Rs. 76.24 per Litre | Rs. 67.54 per Litre |
What is the impact of GST on petrol prices in India? Let’s take an example of the capital city, Delhi.
Here goes the calculation:
| Break-up of petrol prices at Delhi | |||
| Elements | Unit | Before GST | After GST |
| Cost & freight price on moving average basis of crude oil | $/barrel | 86.61 | 86.61 |
| Average exchange rate | Rs./$ | 67.51 | 67.51 |
| Price charged to dealers (Excluding excise & VAT) | Rs./Litre | 37.89 | 37.89 |
| Add: Excise duty | Rs./Litre | 19.48 | 0 |
| Add: Dealer commission (average) | Rs./Litre | 3.63 | 3.63 |
| Total | 61.00 | 41.52 | |
| Add: VAT applicable for Delhi @27% | Rs./Litre | 16.47 | 0 |
| Add: GST at peak rate of 28% (assumption) | 0.00 | 11.63 | |
| Retail selling price at Delhi | Rs./Litre | 77.47 | 53.15 |
A SERIOUS CONCERN
The transportation of goods and commodities as well as that of human beings is greatly dependent on petrol. Hence a slight change in the price of petrol affects the cost of many other things. Due to this reason, the retail price of petrol (that is the price that is charged in petrol pumps) changed every day and, as of now, it is one of those few quantities that is not under the influence of GST.
It was 16th June 2017 when decided that the prices are revised on a daily basis (unlike in the past when the same was revised twice a month). A number of factors like rate of currency conversion and global crude oil rates influence this.
As of May 2018, Mumbai is the city where petrol is the most expensive whereas Andaman & Nicobar is where it is at its cheapest. With last few weeks marking a sudden hike in the fuel rates, India sees a turbulent wave hitting the entire nation.