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Explained: Who is gaining from the sharp rise in fuel prices?

International oil prices have risen sharply as the market expects the global rollout of vaccines will accelerate economic activity and raise demand, while OPEC continues to keep supplies tight. This, along with high taxes by the Centre and states, has also inflated petrol and diesel prices.

June 23, 2021 / 06:57 PM IST
(Image: Reuters)

(Image: Reuters)

With petrol prices soaring above Rs 100 in Mumbai and close to the three-figure mark in other metros, the question of whether the government will opt for an excise duty cut is again in public domain.

Petroleum minister Dharmendra Pradhan has blamed the rising global crude prices and oil bonds that the Manmohan Singh government had taken, which the current government is forced to repay with interest.

“There has been a jump in crude oil prices in the international market. One of the main reasons behind the rise in fuel prices in India is that we have to import 80% of the oil we consume," he said. Moneycontrol takes a look at what are the factors that are contributing to the current rise in petrol and diesel prices.

Why are prices rising?

In Mumbai, petrol rose to the all-time high of Rs 103.63 a litre, while diesel at Rs 95.72 per litre. In other metros also, petrol prices were inching towards Rs 100, touching Rs 97.50 in Delhi, Rs 98.65 in Chennai and Rs 97.38 in Kolkata. Prices in Mumbai are higher because of steeper local taxes.

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Petrol & Diesel Rates Sep 30, 2022

Friday, 30th September, 2022

Petrol Rate in Mumbai Sep 30, 2022

  • Current Petrol Price Per Litre
    106

Friday, 30th September, 2022

Diesel Rate in Mumbai Sep 30, 2022

  • Current Petrol Price Per Litre
    94
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As Pradhan says, international crude prices have indeed risen in the past year. The average price of the Indian Basket Crude oil increased 119 percent from a mere $30.61 a barrel in May 2020 to $66.95 a barrel in May this year. Brent crude prices had crashed to $19 per barrel in April 2020 because lockdowns and travel restrictions in various countries crushed fuel demand. However, on June 23, 2021, Brent prices touched $75.32 a barrel, the highest in more than two years, raising concerns among consumer nations like India.

Why is the opposition blaming the government?

When the crude prices were down, instead of passing the benefit to consumers, the government raised excise duty in March last year. For petrol, it rose from Rs 19.98 a litre to Rs 32.90, while for diesel it increased from Rs 15.83 a litre to Rs 31.80 a litre. This rise in taxes has also contributed to higher fuel rates.

Currently, central and state-level taxes contribute to about 55 percent of the retail price of petrol and 51 per cent for diesel. Apart from central and state taxes, fuel prices also include freight charges and dealer commission. The tax component includes customs duty, excise duty and value-added tax by the state governments. At present, the customs duty rates on petrol, diesel remain the same at 2.5 percent and the social welfare surcharge on custom duty was increased from 3 percent to 10 percent by the Centre.

Who is earning more, states or the Centre?

Over the past five years, the central government’s excise duty collection from petrol rose 167 percent from Rs 29,279 crore in 2014-15 to Rs 78,230 crore in 2019-20. This has further increased to Rs 89,575 crore during the April to January period of 2020-21, owing to the rise in taxes last year.

A similar hike was seen in diesel, with excise collection almost tripling to Rs 1,23,166 crore in 2019-20 from Rs 42,881 crore in 2014-15. For the April to January period of 2020-21, this has further increased to Rs 2,04,906 crore.

States have also used their taxation power on fuel to raise resources. The price of fuel differs from state to state, depending on the rate of local taxes like VAT and also freight charges in that state. Among the states, Rajasthan levies the highest VAT on petrol and diesel, followed by Madhya Pradesh, Odisha and Maharashtra.  In February, states like West Bengal, Assam, Rajasthan and Meghalaya had decided to cut taxes on fuel. 

Data from the government’s Petroleum Planning and Analysis Cell (PPAC) shows that contribution to the state exchequer in the form of sales tax and value-added tax of petroleum, oil, and lubricants has increased by 46 per cent from Rs 137,157 crore in 2014-15 to Rs 200,493 crore in 2019-20. For the first nine months of 2020-21, it was seen at Rs 135,693 crore.
Shine Jacob
first published: Jun 23, 2021 06:57 pm
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