Here’s Why You Are Paying So Much For Petrol and Diesel in India

Did you know that taxes and duties make up more than 100 percent of the actual price of a litre of petrol?

For the past year, fuel prices have been completely deregulated and allowed to fluctuate with the price of crude oil and the rupee-dollar exchange rate. Globally, crude oil prices have been rising over the past few months and to make matters worse, the rupee has weakened.

That has led to a constant increase in fuel prices over the past few months. However, it’s not as if the government cannot help stem this rise in prices. It has a large enough cushion of excise duties and VAT that it can tinker with to keep prices in check.

But it won’t do that. As that will lead to a fall in one of its biggest sources of revenue. Prices of petrol and diesel are set to rise by up to Rs 4 in the next few days as the government had artificially kept prices on hold for 20 days (between April 24 and May 14) in view of the elections in Karnataka. Crude oil prices have risen further in that time and the rupee has weakened some more.

Here’s an interesting fact. Diesel is now more expensive than petrol at the refinery level. The price of diesel to dealers is more than that of petrol. However, taxes on petrol are higher than those on diesel, just so that the government can keep inflation in check. 

Diesel is a fuel largely used by truck fleet to transport essential goods. A rise in diesel prices will have a direct effect on the cost of goods around the country.

How Much Tax Are You Paying?

If you look at the price build up of petroleum products, you will notice that the actual cost of the a litre of petrol to dealers is just Rs 36.19 per litre (prices as of 17 May 2018). This is the price at the refinery gate.

If you calculate the excise duty that the centre charges, the VAT charged by the state and the dealers’ margins, the consumer ends up paying 108 percent more than what a litre of petrol is actually offered to dealers at. That’s some mark up.

Dealers end up making Rs 3.61 on every litre of petrol they sell you. With diesel the duties collected are slightly lower, although diesel is actually more expensive than petrol. (Globally diesel is priced higher than petrol in many countries.)

Similarly, with diesel the total taxes that a consumer ends up paying over and above the price of diesel at the refinery gate is nearly 71 percent. Dealers make Rs 2.52 on every litre of diesel sold.

In the 20 days that fuel prices were kept on hold, the rupee weakened from Rs 66.62 per dollar to Rs 67.06 per dollar, which further increases the import costs of crude oil and eats into the refiner’s margins.

The crude oil price of the Indian basket (a mix of Oman and Dubai oil grades) was $69.30 in the month of April. It now stands at $88.91 a barrel for the crude used to refine diesel and $83.29 a barrel for the crude oil used to make petrol.

Brace for some steep price hikes soon, unless the government decides to knock of excise duties and states decide to go easy on the VAT they charge. Fuel prices and alcohol prices have been kept out of the ambit of GST so far.

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