Updated: December 10, 2020 8:19:51 pm
An auto-rickshaw is parked at a Hindustan Petroleum Corp. gas station in Coonoor, Tamil Nadu, India. (Bloomberg photo: Dhiraj Singh)
Oil trading companies have raised the prices of gasoline and diesel by more than 2 rupees and almost 3.50 rupees respectively since November 19, after keeping them unchanged for 59 days. Diesel currently sells for Rs 73.87 per liter in the capital, while gasoline is retailing at Rs 83.71 per liter. On Wednesday (December 9), gasoline was selling for Rs 90.34 at pumps in Bombay, according to data released by the Petroleum Planning and Analysis Cell (PPAC). Retail fuel prices in India are now the highest since October 2018.
What is causing gasoline and diesel prices to rise?
Rising global crude oil prices and a better outlook for demand for petroleum products due to prospects for a viable Covid-19 vaccine are the key reasons behind the recent rise in gasoline prices and diesel, according to experts.
The price of Brent crude has risen to nearly $ 49 a barrel, its highest level since early March. The price of Brent crude slumped from $ 66 a barrel at the beginning of the year to $ 19 a barrel in April due to global travel restrictions as countries closed to control the transmission of the novel coronavirus.
The excise duty collected by the Center is the largest component of the price of gasoline in Delhi (Table 1)
Since India imports most of the fuel needed to meet its demands, the price of fuel rises along with world prices. Oil trading companies review domestic gasoline and diesel prices based on changes in international gasoline and diesel prices.
However, when world oil prices plummeted and India crashed, Indian OMCs stopped reviewing gasoline and diesel prices for more than 80 days.
“Crude oil prices worldwide have risen. The improvement in the demand outlook due to the improved outlook for a vaccine has been reflected in a widening of the cracks for gasoline and diesel, ”said Vivekanand Subbaraman, analyst at Ambit Capital. He noted that the impact of the recent rise in crude oil prices had likely been incorporated through recent price increases.
Crack spreads are the difference between the price of a barrel of crude oil and that of a refined petroleum product such as diesel or gasoline. 📣 Follow Express explained on Telegram
How many revisions have been made to the price of gasoline and diesel this year in India?
The latest 30-paise rise in the price of gasoline is the 56th revision of the price of gasoline in Delhi since April 1, according to data released by the PPAC. The price of diesel has been revised for the 67th time this year in 26 countries. Except for a brief period from September to October, when prices were reduced, fuel prices have been steadily rising.
This increase was due in part to additional fees and charges imposed by the Center and state governments. The Central Board of Indirect Taxes and Customs increased the road and infrastructure rate, as well as the additional special tax on gasoline and diesel in May 2020, following a similar announcement in March.
Since 2014, the revenues collected by the Center from the sales of oil and derivatives have almost doubled (Table 2)
But why are prices higher even though crude is still cheaper than at the beginning of the year?
The central government and several state governments have significantly increased tariffs on gasoline and diesel as a way to increase revenue since the Covid-19-related lockdown severely restricted economic activity.
This has brought the current price of gasoline closer to the price levels of October 2018, when the cost per barrel of India’s crude oil basket reached $ 80.
State and central taxes currently represent about 62% of the retail price of gasoline and about 57.5% of the retail price of diesel in Delhi.
The central government has increased the excise duty on gasoline to Rs 32.98 per liter from Rs 19.98 and at the beginning of the year, and increased the excise duty on diesel to Rs 31.83 per liter from Rs 15.83 during the same period.
Many states including Delhi, Maharashtra, Tamil Nadu and Karnataka have also increased state taxes on gasoline and diesel since the start of the tax to increase revenue.
How much have prices changed in India?
In Mumbai, where consumers pay the highest fuel prices among the subways, the price of gasoline has risen 11% in October compared to last year. The price of gasoline in Delhi was up 10.35% compared to October last year. (CPI inflation for the same period was 7.61%).
What are the different components of the price of fuel?
The excise duty collected by the Center is the largest component of the price of gasoline in Delhi (see Table 1). Since 2014, the revenue collected by the Center from the sales of oil and petroleum products has almost doubled (see Table 2).
The value-added tax (collected by the state on the price of gasoline and the dealer’s commission) represents less than a quarter of the price.
Together the taxes and duties amount to 63% of the cost of gasoline in Delhi. The base price of gasoline is less than a third of the price at which a buyer in Delhi gets it from the retailer. Retailer commissions and freight charges together with the base price are just over a third of the price.
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