Crude Oil Prices Halved, But Your Fuel Bill Didn’t, Here’s Why

The government now makes over twice of what it did three years ago from the sale of a litre of petrol.

Image used for representation.

(Photo: AP)

The Government of India now makes over twice of what it did three years ago from the sale of a litre of petrol. That’s why domestic auto fuel prices are at a three-year high even as crude fell by half in the last three years.

The government’s average earning from tax on the sale of petrol has doubled to Rs 21.48 a litre since September 2014, according to data compiled from the Petroleum Planning and Analysis Cell website. In comparison, the Asian benchmark Brent crude fell to $55 a barrel (nearly 159 litres) from $100 three years ago.

(Photo: BloombergQuint)

For diesel, the government’s per litre earning has nearly quadrupled. It gets Rs 17.3 as excise duty compared to Rs 4.52 in September 2014.

(Photo: BloombergQuint)

The price at which fuel is sold at pumps includes the crude price, customs duty, an excise duty levied by the central government, a value added tax levied by states, and a commission to dealers.

By 2014, the government had deregulated fuel prices, allowing them to move as per market conditions. Prices were revised every 15 days. In June this year, it decided to revise fuel prices daily in some metros to ensure that the retail price reflected the international price accurately.

The government argues that 42 percent of what it gets from excise duty goes to states. The rest goes towards funding welfare schemes and spending on railways, roads, infrastructure and sanitation, Minister of Petroleum & Natural Gas Dharmendra Pradhan told reporters at a press conference on Wednesday, 21 November.

It is considering to bring auto fuels under the Goods and Services Tax net to make prices more predictable and uniform, Pradhan said. “GST is the only way to have a rational price mechanism,” he said.

Pradhan said the recent spike in fuel prices is due to the back-to-back hurricanes in the US, which forced refineries to cut inventory by 13 percent. He expects oil prices to ease.

(The article was originally published on BloombergQuint.)