One Reason Why Fuel Prices Are Pinching You
Prices of petrol and diesel are at their highest in four years even as Brent crude at $70 a barrel, despite the recent surge, is still lower than the peak level of $108 in 2014.
That’s because the central government’s levy on every litre of auto fuels rose at least twofold during the period. The result: retail petrol and diesel prices have increased by 2 percent and 17 percent, respectively, when Brent crude is still 30 percent lower than 2014.
The price at which fuel is sold at pumps includes the cost of crude, customs duty, an excise duty levied by the central government, a value-added tax levied by states, and commission to dealers.
Here’s how much the government earns from auto fuels:
The central government’s average earning from tax on the sale of petrol has doubled to Rs 19.48 a litre in four years, according to data compiled from the Petroleum Planning and Analysis Cell and Indian Oil Corporation Ltd. website.
Its earnings from sale of diesel have more than tripled to Rs 15.33 a litre during the period.
The government and oil explorers used to shoulder the subsidy to cushion consumers from high crude prices. By 2014, it deregulated auto fuel prices, allowing them to move in line with the market. Prices were revised every 15 days. In June last year, it decided to revise them daily in some metros to reflect the international rate accurately. Which means, consumers had to pay more every time crude prices rose.
To be sure, the government reduced excise duty by Rs 2 each for petrol and diesel in October last year. Now when oil has crossed $70 per barrel, it has asked state-run oil marketing companies to absorb up to Re 1 hike in retail prices, according to Bloomberg.
So, while consumers may have been spared any further cost burden at this point, the reluctance of central and state governments to reduce taxes will now, four years after deregulation, hurt the profitability of oil marketing companies.