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Government duties, not international oil price hikes are to blame for the high fuel prices

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The Modi govt has not passed on the benefits of a steep fall in global oil prices to consumers; instead it raised the excise duty, leading to fuel price hikes.

New Delhi: The government has attributed the latest hike in fuel prices to a surge in global oil prices. However, the fact is that although crude oil prices have witnessed a steady decline since 2013, petrol prices in India have either gone up or remained unchanged in the past five years, thanks to a spike in excise duties, reveals an analysis by ThePrint.

Petrol prices touched a four-year high over the weekend and will cost an additional Rs 0.10-0.12 in the major metros — Delhi (Rs 73.83), Mumbai (Rs 81.69), Chennai (Rs 76.59) and Kolkata (Rs 76.54).

Soon after the NDA government took office in 2014, global oil prices witnessed a sharp decline. However, the steep price drop was not passed on to the consumers. Instead, government had effected an increase in excise duties, leading to prices not falling.

The UPA government, however, had kept fuel prices under control through 2009 and 2014 even as oil prices rose internationally.

Prime Minister Narendra Modi had said at an election rally in New Delhi in 2015, “If Modi’s luck is benefitting the people, what can be more fortunate? If due to my good luck, prices of petrol and diesel come down and common man saves more, then what is the need to bring someone who is unlucky?”

However, over the next three years, the government had been routinely asked why it had not passed on the benefits of the record low oil prices to the consumers.

Worried about the fallout from the consistently rising fuel prices, the government finally reduced excise duties by Rs 2 for petrol and diesel in this year’s Union Budget.

Hike after hike

For the period between May 2014 and September 2017, the excise duty on petrol rose by 54 per cent, VAT by 46 per cent and dealer’s commission by 73 per cent, according to Petroleum Planning and Analysis Cell (PPAC) data.

Historically, crude oil reached an all time high of $145.31 per barrel in July 2008.

In 2010, the government rolled out deregulation of fuel prices, thereby paving the way for refiners and oil marketing companies to peg the crude oil prices in line with the international markets. Prices were gradually raised to concur with the price movements internationally.

Mid-2017, the government introduced dynamic fuel pricing, a strategy that allows a revision of retail oil prices on a daily basis to align with the current global crude oil prices. The idea was to ensure the oil marketing companies secured the benefits of the tiniest change in international oil prices, which in turn could be passed on to the consumers. The plan was also to help insulate domestic pricing from any sudden big price movements.

Before dynamic fuel pricing came into effect, the oil marketing companies revised rates on the 1st and 16th of every month, based on average international price.

However, it needs to be noted that the price of international crude oil alone does not make up for the overall fuel price. Taxes levied by the state and central governments form a big part of the total bill paid by the consumers.

Doing the math

Currently, the petrol price in New Delhi stands at Rs 73.86 per litre, the highest increase since the price was raised up to Rs 76.06 in September 14, 2014. Diesel price is at an all-time high of Rs 64.58 per litre. Taxes make up for about 50 per cent of overall cost per litre of petrol and diesel.

Petrol and diesel do not come under the Goods and Services Tax, rolled out by the government in July last year. Bringing fuel under the GST umbrella could potentially only make the product even more expensive.

Here’s a quick look at the tax break-up on fuel in 2018 and 2011.

Tax Breakup 2018 Petrol Diesel
International Price of Crude Oil with Ocean Freight (as on 3rd February 2018) 65.5 $ or Rs 4200 per Barrel 65.5 $ or Rs 4200 per Barrel
1 Barrel of Crude Oil 159 Litre 159 Litre
Crude Oil  – Cost per Litre Rs 26.42 per Litre Rs 26.42 per Litre
Basic OMC Cost Calculation
Entry Tax, Refinery Processing, Landing Cost & Other Operational Costs along with Margins Rs 4.75 per Litre Rs 7.5 per Litre
OMC Margin, Transportation, Freight cost Rs 3.31 per Litre Rs 2.87 per Litre
Basic Cost of Fuel after Refining Cost Rs 34.48 per Litre Rs 36.79 per Litre
Additional: Excise Duty + Road Cess as Charged by Central Government Rs 19.48 / Litre on Petrol Rs 15.33 / Lit on Diesel
Pricing Charged to Dealers before VAT Rs 53.96 per Litre Rs 52.12 per Litre
Calculating Dealer Retail Price – Base Location Delhi
Commission to Petrol Pump Dealers Rs 3.59 per Litre Rs 2.51 per Litre
Fuel Cost Before VAT (rounded off for approximation) Rs 57.55 per Litre Rs 54.63 per Litre
Additional:VAT (Varies from State to State – 27% on Petrol & 16.75% on Diesel + 25p as Pollution Cess with Surcharge) Rs 15.54 / Lit on Petrol Rs 9.44 / Litre on Diesel
Final Retail Price as on 3rd February 2018 -(calculation) Rs 73.09 per Litre Rs 64.07 per Litre


Tax Breakup 2011 Petrol
(Rs per litre)
(Rs.Per Litre)
Basic Price of Petrol / Diesel without taxes and refining margins 41.38 33.63
Custom Duty On Petrol / Diesel (2.5% of A for petrol, 2.25 % for Diesel} 1.04 0.76
Central Govt.CENVANT Duty (Central Value Added Tax) 6.35 2.06
Central Govt.Special Excise Duty 6.00 N IL
Central Govt.Additional Excise Duty Towards Highway Cess 2.00 N IL
Education Cess of 3% on CENVANT Duty + Special Excise Duty + Highway
Cell (3% of C+D+E) 0.43 N IL
Total Central Taxes 15.82 2.82
Petrol / Diesel Price With Central Taxes (A+G) 57.20 36.45
State Govt.VAT in Delhi, 20% of Petrol Price With Central Taxes (20 % of
H for Petrol} Discounted Rate For Diesel 11.44 4.84
Total Central Taxes + State Taxes on Petrol (G+I) 27.26 7.66
Total Retail price of petrol Basic Price + Central Duties and Taxes


68.64 41.29


As is visible in the two charts, the amount of duties levied on the basic price is higher in 2018 than in 2011.

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  1. News reports indicate that prices of petrol , diesel , CNG and PNG have been hiked substantially from 1 April 2018 in Delhi and NCR. This happening can be said to be implied in the alert predictions of this Vedic astrology writer made often after October , 2017. The alert had indicated that more care and appropriate strategy may be alright while handling or storing or dealing with gas , oil , diesel and the like during 2018 , more so during 8 April to 5 May 2018 in Delhi and nearby. It seems the alert was implied.

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