Why 75% fall in global oil prices isn’t reaching you

R ecord production in the US, weakened demand from the Eurozone and emerging economies like China and Brazil, and Iran's entry into the international market have effectively slashed the price of crude oil for India, from $106 per barrel in July 2014 to $26 in January 2016, a 75 per cent drop in 18 months.

So, why are you not seeing evidence of this price cut at your local petrol and diesel station? The answer: As global crude prices reach 11-year low, the Centre and state governments steadily increase excise duties and value-added tax, shoring up their revenues and keeping fuel prices high for retail consumers.

Although India imports more than 80 per cent of its fuel requirements, which means declining global prices should, theoretically, have seen sharp declines in retail petrol and diesel prices, Indian consumers of petrol and diesel now pay about double the global rate.

Why retail price still high?  

Retail prices of petrol and diesel prices in three states — Assam, Uttar Pradesh and Gujarat — show a variation of less than 10 per cent during the current financial year, 2015-16, according to an IndiaSpend analysis. For instance, the petrol price in UP rose Rs 2/litre when global oil price halved over the same period.

Indian prices stay high because oil marketing companies (OMCs), such as Indian Oil Corporation Ltd, Hindustan Petroleum Corporation Ltd and Reliance Industries Ltd, add their margins, the Central government adds excise, state governments add their own (value-added) taxes, and the dealers (petrol pumps) get their commission. The total of these is the retail price of the fuel you pay.

Duty up 5 times in 3 months 

The excise duty on petrol and diesel has been hiked five times over the last three months — 34 per cent on petrol and 140 per cent on diesel. The price at which OMCs sell petrol to dealers (petrol pumps) has been halved in two years. Over the same period, retail petrol prices have come down only by 15 per cent.

The value-added taxes imposed by states have more or less remained the same, but excise duties, both basic and additional, imposed by the Centre have doubled between 2014 and 2016.

Taxes exceed fuel price

The addition of Central taxes on diesel is higher than those on petrol. Central taxes per litre of diesel rose to four times its value in less than two years — from Rs 4.52 per litre in April 2014 to Rs 17.33 per litre in February 2016.

Retail consumers pay more tax on petrol and diesel than its actual price.

Of the price you pay for a litre of petrol, 57 per cent goes to the government as tax. Of the Rs 44 per litre of diesel, 55 per cent is tax. If the excise duties on diesel had not been increased these two years, diesel would have cost Rs 32 per litre today, other factors remaining the same. Lower fuel prices can keep inflation in check, according to a report in a business daily. — IANS