Fuel prices have increased 21 times in 2021, with petrol and diesel prices increasing by Rs 5.83 and Rs 6.08 per litre.

A petrol pump attendant pumps fuel into a car in India
Money Fuel Wednesday, February 17, 2021 - 16:52

Customers are paying through their nose to purchase petrol and diesel in the country, with price hikes continuing unabated. Retail prices rose for the ninth consecutive day on Wednesday, and branded/premium or additive mixed petrol is already over the Rs 100-mark at some places. Regular petrol is over Rs 90 per litre in many locations, and is inching towards the Rs 100-mark.

In a month-and-a-half of 2021, fuel prices have increased 21 times, with the two auto fuels increasing by Rs 5.83 and Rs 6.08 per litre. In nine straight days, prices have gone up by Rs 2.59 per litre for petrol and diesel by Rs 2.82 a litre. On Wednesday, oil marketing companies raised prices by 25 paise per litre for both petrol and diesel.

Oil firms have also hiked the price of cooking gas (LPG) by Rs 50 per cylinder and that of jet fuel (ATF) by 3.6%. LPG now comes for Rs 769 per 14.2 kg cylinder in the national capital.

A week ago, Oil Minister Dharmendra Pradhan ruled out any cut in excise duty for now and said that retail pump rates are governed by international prices as India is largely dependent on imports — at 85% —  for meeting its needs.

Where fuel prices stand in south Indian cities as on February 17:

CityPetrol Diesel
HyderabadRs 93.10Rs 87.20
BengaluruRs 92.54Rs 84.75
ChennaiRs 91.68Rs 85.01
ThiruvananthapuramRs 91.42Rs 85.93
KochiRs 89.70Rs 84.32
VijayawadaRs 95.31Rs 88.91
VisakhapatnamRs 94.5Rs 88.10
MysuruRs 92.14Rs 84.39

All prices per litre. Source: IOCL

Global oil prices (both product and crude) have maintained a record streak of gains in the past few days with crude reaching over $63.5 a barrel mark. 

In theory, the Oil Minister is correct — that the price of fuel in the country is contingent on international crude oil prices. If the price of a barrel goes up, fuel prices go up as well, and is supposed to happen vice versa.

And given that India imports most of its requirements, crude prices affect the country’s fiscal deficit as well. According to an RBI staff study from 2019 — every $10 per barrel increase in crude prices leads to an additional $12.5 billion deficit for the country.

While any increase in crude oil prices is promptly passed on to the consumer, it doesn’t reduce, when prices are rolled back.

A large chunk of the price, about two-thirds of what you pay for petrol and diesel, is excise duty and taxes. The remaining is the base price of the fuel, freight and dealer commission. The excise duty is what is levied by the Union government, and VAT by the state. Dealer commission also slightly varies depending on the location.

According to Indian Oil, here’s the break up for Delhi on February 16 for one litre of petrol:

Out of the price of Rs 89.29, Rs 53.51 is excise and VAT alone — or 59.92% of the total price. Excise and taxes on diesel come in at about 54%.

International crude benchmark rates plunged to decade lows in April 2020. If the price of fuel in the country was solely contingent on crude oil prices, fuel should have become cheaper as well. However, the Union government hiked excise duty on petrol by a record Rs 13 per litre and on diesel by Rs 16 a litre to mop up gains arising from the fall in rates, but did not cut taxes when oil prices bounced back. Retail petrol rates have risen by Rs 19.95 per litre since mid-March 2020.

Thanks to this hike, excise duty on petrol went up to Rs 32.98 per litre from Rs 19.98 per litre and on diesel to Rs 31.83 per litre from Rs 15.83. Along with the Union government, states also hiked taxes to make up for the shortfall in revenues due to the lockdown.

Here's how prices looked in May 2014 and Feb 2021 for New Delhi:

 May 2014Feb 2021
Base price and freightRs 47.12Rs 32.1
Central taxesRs 10.39Rs 32.9
State taxesRs 11.9Rs 20.61
Dealer commissionRs 2Rs 3.68
Retail selling priceRs 71.41Rs 89.29

Source: PPAC, IOCL

As we can see, the base price of petrol has reduced, while the taxes have increased. 

It is important to remember that high petrol prices was one of the biggest issues the BJP had raised when it came into power in 2014, and had promised to bring it down. At the time, crude was at $109.1 a barrel. It’s now around $63.5 a barrel, but users have not benefited.

In the 2021 Union Budget, the government added an agri-infra cess on petrol and diesel at Rs 2.5 and Rs 4 respectively, and simultaneously reduced the excise duty by the same amount so it would not affect the consumer. However, what this does is take money away from states. Money collected from cess goes directly to the Union government, whereas central excise and customs duties go to the Consolidated Fund of India, and are then divided between the Union government and the states based on the formula devised by the Finance Commission.

Going ahead

In case there were hopes of prices going down anytime soon, that is unlikely as well. Global oil prices (both product and crude) have not been falling, and have maintained a record streak of gains in past few days with crude reaching close to $63.5 a barrel mark.

Ajay Kedia, Director, Kedia Commodities to CNBC TV18 that oil prices have been rising on the back of a number of improved fundamentals. “Hopes of the stimulus package in the US, fears of heightened tensions in the Middle East, demand growth after easing of lockdowns across economies, production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+, among others. The trend in crude oil will remain positive,” he said. 

Oil companies executives told IANS said that petrol and diesel prices may increase further in coming days as retail prices may have to be balanced in line with global developments to prevent Oil Marketing Companies from making losses on sale of auto fuels.

Wiht inputs from agencies

Show us some love! Support our journalism by becoming a TNM Member - Click here.