NEW DELHI: Fuel prices have gone up by more than Rs 20 since May 2020, even though the base cost of petrol and diesel has risen by only Rs 3-4 a litre during this time, as last year’s sharp tax hikes harden the pinch of the current oil price rally.
On May 1, 2020, petrol cost Rs 69.59 a litre at pumps in Delhi, the reference market, on a base price of Rs 27.95. Diesel retailed for Rs 62.29 on a base price of Rs 24.85 a litre.
Data for this May 1 shows the base price of petrol going up by Rs 3.53 to Rs 31.48 but retail price rising by Rs 20.81 to Rs 90.40 a litre. Similarly, the base price of diesel is Rs 4.17 is more than May 2020 but the retail price is up Rs 20.32 at Rs 82.61 a litre.
Some could argue that India’s crude cost has risen from $31 per barrel in May 2020 to $66 at present. Indeed, crude is a factor in pricing fuels. But petrol and diesel prices are set according to their international quotes and the rupee-dollar exchange rate. This explains why base prices have risen modestly and not doubled the way crude has.
The answer to the conundrum lies in the Centre’s tax hikes last year and subsequent increase in VAT by states. The Centre raised excise duty by Rs 13 on petrol and Rs 16 on diesel between March and May last year when oil prices collapsed due to the pandemic.
The two hikes raised excise duty 65% on petrol from Rs 19.98 to Rs 32.98 a litre and 79% on diesel from Rs 15.83 to Rs 28.35. Excise duty accounts for 36% and 34%, respectively, of the current retail price of petrol and diesel. VAT accounts for about 22% in Delhi and more in other states such as Rajasthan, Madhya Pradesh and Maharashtra.
These taxes amplify the net impact for consumers when retailers raise the base price in tune with the global oil market. Revisions prompted by crude rally since January pushed up petrol price to Rs 100 in the country on February 17. As demand for excise cut grew louder ahead of the state elections, the government shifted the blame on Saudi-led OPEC-Plus, saying the grouping was rigging oil prices by capping production.
But the state-run retailers, who control 90% of the market, stopped the price revisions from February 28 till March 23 on government ‘nudge’, even though India’s crude cost topped $68 per barrel in between. Now that elections are over, the revisions are back and petrol price is hitting the century in more cities every day.
After the last round of excise hike, retailers adjusted the additional duty against higher margins from cheaper crude. But when states took the cue and raised VAT. The retailers raised pump prices to pass on the burden. Yet, consumers remained largely unaffected as the country was under lockdown.
The Budget 2021 slapped agriculture infrastructure development tax of Rs 2.50 and Rs 4 a litre on petrol and diesel, respectively. But the amount of Central taxes remained unchanged at Rs 32.90 on a litre of petrol and Rs 31.80 on diesel as the agriculture cess was offset by an equivalent reduction in the basic excise and special additional excise duties on the fuels.