A litre of petrol costs Rs.90.44 and a litre of diesel costs Rs.80.77 in the state capital, Delhi and Rs.96.81 and Rs.87.79 in financial capital, Mumbai ( as per data, IOC, April 16,2021). The scenario of the retail price surge is not different in states like Kerala (petrol- Rs.92.26 per litre and diesel- Rs.86.74, as per April 16, 2021) the electoral battles grounds of South India. Mainstream political parties are damn silent about the ever time spike in oil prices which affects the lives and livelihoods of people. The inherent upward trend has lost some momentum after the election commission announced results in some states.
Both centre and state
governments blame the international price fluctuations when there is a hike in
petrol price. India imports more than 82 % of crude oil from other countries
and fuel price is correlated with the international price of
brent crude oil. But as everyone knows, by the same token, domestic prices also
must decline followed by a decline in global prices. Quite often the upward
movement go hand in hand but not downward movement. Why? Theoretically the
demand-supply factors determine the high
prices, but often economic theory
alone cannot explain the rise in oil
prices as it has other components of central and state taxes and dealer
commission. The high price is always associated with the ‘dynamic pricing’ by
the government.
Deregulation of Fuel
Prices
In order to understand
how fuel prices are being decided, we should see a bit of the deregulation of
petrol and diesel prices. Government had periodically intervened in the retail prices of fuel, in 2010
(Dr. Manmohan Singh) deregulated the price of petrol and gave liberty to Oil Marketing Companies to fix price of petrol based on calculation of
their cost and profit. Further deregulation of diesel was implemented in
2015(Mr. Narendra Modi). The rationale
of deregulation is to manage the cost of
the oil prices by retailers like
BPCL, Indian Oil Corporation, HPCL as these companies were suffering due to
losses and the compensation from government do never reach them on time. The
deregulation of petrol prices in 2010 and diesel prices 2014 gave companies the
rights to revise the prices. Despite these changes made in the system, the oil
prices are at a skyrocketing level, and the progressive promises made by the
political parties during the times of election nowhere helpful at this critical
juncture.
Why a small country like
Nepal has no refinery and mainly depending on India for its oil requirement has
a lower price of fuel ? Would fuel prices be lower than what actually is ? Major
oil producing countries had a cut in oil production since there is a steep fall in the demand especially
when transportation sector was stand still during the
days of pandemic. Why high oil prices in India despite fall in the international prices of
crude oil ? the trend in prices gives a
clear picture.
Trends in the Fuel Price
The trend shows the domestic prices are not coupled with the fall in international prices. Then what would
be the reason for the current surge in
the oil prices ? Therefore, it is important to look at the methodology of oil
prices in India.
Fuel price dynamics
The composition of oil
prices consists of three factors. 1. Processing and cost of
refining crude oil – base price. The OMC’s purchase crude oil from the
international markets, after the processing the fuels like Petrol and diesel produced also
requires substantial freight charges 2. state and central tax 3.dealer
commission. And the prices are calculated based on this criterion.
|
Price Buildup |
May 2014 |
April 2021 |
|
Base Price |
47.12
(66%) |
30.09
(33 %) |
|
Centre’s Tax |
10.39
(14%) |
36.47
(40 %) |
|
State’s Tax |
11.9
(17%) |
20.96
(23 %) |
|
Dealer Commission |
2
(3 %) |
3.65
(4 %) |
|
Total Retail Price |
71.41
(100%) |
91.17
(100 %) |
Petrol
prices build up for State Capital.
Methodology of prices
shows the various costs involved in the
production of fuels from initial stages to final stage. Petrol and diesel are
refined and processed from the crude
oil and
it is distributed by the retailers in
the final stage. The cost involved in the initial stage of processing,
refining and freight charges of Petrol include
in the base price of Rs. 30.09 (April 2021). The Central excise duty is Rs.36.47,
the state duty is Rs.20.96, the dealer
commission is Rs.3.65. and the final retail price is Rs.91.17 which includes a
major portion as tax. Although the base
price was high, the retail price was comparatively low in May 2014. Hence the
pricing shows the increase in fuel prices is correlated with the tax by the
central and the state government and not always due to the spike in the price
of crude oil in the international market.
Thus, the common man is forced to pay a high tax for fuel, which is nearly 200 % percent of the cost of refining. India has more than 256 refineries like Jwalamukhi, Digboy, KG Basin etc and two oil producing authorities such as IOC and ONGC. The government stopped the subsidy to the oil marketing companies and the fuel prices are under the control of state and central government and there is a habitual increase in the fuel price bimonthly since July 2016. Now that it is not a surprise as it changes in every 24 hours. Even if there is fall in the international prices, Government still charges fresh taxes to assimilate profit from the fall in prices.
Often a clear picture of the situation can be brought
into light with an interaction to auto men/taxi drivers which divulge the pain of common man
in the scenario of escalating fuel prices creating heavy burden on people’s lives. This despair continues in
every Indian household irrespective of their ownership of a vehicle. Lives of the
people cannot be improved without
adequate measures to boost the demand in
the rural-urban households. Although the trend in headline inflation remains
at moderate rate of 5 % , the core inflation increased to 5.96 %
in March 2021, the rising prices put pressure on the cost of inputs and other
commodity prices.
Surprisingly state like Meghalaya reduced tax from 31.62%
to 20 % in the recent past, however
Rajasthan has highest duty of 36
%. Lackadaisical attitude of the state and the political parties leads to
cascading effects in the lives of the people. The hike in oil prices impacts
the transportation sector, hitting the lives of many with the increase in the
prices of necessary items and the
increase in freight charges and it leads to the slowing down of
manufacturing sector which leads to the
vicious circle of low income and low productivity. Keeping high oil prices and reducing fuel subsidies
to the oil producing companies create a detrimental situation to the economic
growth as oil is a commodity which fuel the dreams and development of the
nation.
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