Is it just that the Global indices for Fuel per barrel which is increasing at a staggering rate or is it the Policy and High Rates of Taxation adopted by the Central Government of India which directly impacts your bills at the Local Gas Stations? Read the article further to know more about the reasons for the rise in fuel prices in India.
Dharmendra Pradhan, the incumbent Minister of Petroleum and Natural Gas in the Second Narendra Modi Ministry came up with “Two Main Reasons” justifying the rise in the Petroleum Prices on behalf of the Central Government which being, “The international market has reduced the fuel production and manufacturing countries are producing less fuel to gain more profit, thus making the consumer countries suffer.” The second reason being, “COVID19, where the government has undertaken many development works due to which the centre and states have to collect taxes. These development projects would undertake jobs and it has also lead to an increase in Capital Spending of the Governments due to which heavy ‘taxes’ have been imposed.”
The prices of fuel all over the country have been at an all-time high thus directly impacting the consumers’ purse. As of the 23rd of February, 2021, the price of Diesel is Rs. 84.16 per litre and Petrol stands at Rs. 91.76 per litre in the state of West Bengal. This direct impact on the consumers’ purse for an almost essential commodity (for the vehicle owners) has been an upsetting factor not just for the people but also for the Prime Minister of India, who went on to speak about India’s foreign dependency on oil. India produces only 20% of the total oil used while it is dependent on its Foreign Allies for the remaining quantities therefore fluctuations in the prices of Petroleum in the Foreign Markets directly impact the prices of oil used by the Indian Consumers.
As per reports and statements from the Finance Minister of West Bengal, Dr. Amit Mitra, Rs. 32.90 was taken by the Central Government as Tax and cess while the state would get Rs. 18.46 only for petrol and in the case of diesel the Centre took Rs. 31.80 whereas the state government got only Rs. 12.77. Of the total collections by the central government, around 65% of the total collections would go in as cess. Another key finding by Amit Mitra was the comparison of the total aggregated cess of 8% of gross tax in 2014 which has gone up to 14.5% in 2021.
It is not just Kolkata, there are cities in India that have fuel prices crossing the Rs. 95 mark too.
Amongst all Metros, consumers in Mumbai pay the highest prices for fuel which has increased by 11% since October 2020.
Indian states like Madhya Pradesh and Rajasthan have seen the prices of fuel crossing the Rs. 100 mark. This is because the state levies are relatively higher in these states compared to Delhi.
The prices of fuel in Delhi for Petroleum stand at Rs. 89.29 for Petrol and Rs. 79.70 for Diesel wherein more than Rs. 60 was allotted for Value Added Tax and Excise Duty. The breakdown of the cost has been mentioned below.
In Madhya Pradesh and Rajasthan, the prices of fuel crossed the Rs. 100 mark. The table on the left determines the comparison between the taxes levied by the State Government of the respective states and over 60% of the prices of fuel go in as VAT and Excise. However, the Indian government had outlined plans to reduce its dependency on Foreign Imports from 77% (2013-14) to nearly 67% (2022) however the domestic production hasn’t really picked off leading to a rise in dependency to almost 80%.
However, oil prices have been globally trending downwards for the past 4 to 5 years giving the central government an opportunity to levy higher rates of taxes to fund the necessary expenditures and Infrastructure projects undertaken shortly after the Pandemic-stricken Economy.
Whenever there is a rise in the prices of petrol in the international markets, which then lead to a rise in the prices of imports, we notice two interesting trends. Either the Oil Marketing companies like Indian Oil Corporation and Bharat Petroleum Corporation take the impact on their price margins and sell the consumers fuel at reasonable rates keeping the prices flat or the Government decides to waive a certain amount from the taxes providing some relief to the consumers. The second trend which we currently are seeing is that the Government imposes heavy taxes and even the Oil marketing companies cannot provide any relief to the consumers, therefore, there is a direct impact on the purse of the consumers which leads to a proportionate rise in the prices of Petroleum.
The prices of Brent Crude which was at $66/barrel in January 2020 fell down to as low as $19/barrel in April 2020 due to the pandemic and restrictions on travel in various countries and less demands for crude oil. From that record low to a rise in prices to $55.37 in January 2021 lead to a rise in prices of fuel in the International Market. Therefore with the imposing of high excise duties has lead to a rise in the prices of Oil. By imposing Re 1.00 a litre in excise duties adds almost Rs. 14,500 crores to the government’s purse. However, the Government is in constant talks to cut down on excise duties on petroleum.
The Rupee-Dollar exchange rates have also played a key role in the rising prices of fuel in India. Exchange rates have a major impact on the amount of oil India can buy in the global market where all the purchases are carried out in Dollars and sales in Rupees therefore Oil Marketing Corporations gain from a fall in oil prices in International Markets only if the rupee is stronger against the dollar.
Therefore keeping the upper observations and the reasons justified by the Union Minister for Petroleum and Natural Gas, inflated rates of Petroleum has been felt throughout the country due to the reduction in fuel production by the Foreign Allies and the fundings for the Infrastructure and Development Projects undertaken by the Government which is indeed burdensome for the consumers. Therefore when the oil prices were tanked, both state and central government hiked up the taxes to shore up revenues and with recovering the prices of crude at such staggering rates, there won’t be any relief for the consumers in the near future. Hopefully, steps would be undertaken to review the prices of Petroleum in India in the near future.
That’s all for this week! We hope you liked it and would love to know your thoughts in the comment section. This article is written and curated by Rahil Sethia.