5 things to know about the ‘out of control’ fuel price rise in India

Consecutive hikes in petrol and diesel prices are pinching the pockets of the common man in India. Blaming it on previous governments, Prime Minister Narendra Modi has highlighted the country’s dependence on energy import as a major reason for the current spike in fuel prices.

At present, the share of imports in the country’s overall crude requirement comes to 89 percent while it is pegged at around 53 percent for gas. This always makes India vulnerable to volatility in the international crude market.

Here is a look at five things one should know about the recent escalation in fuel prices.

What are the reasons for the hike in petrol and diesel prices?

There are two major reasons for the current hike in fuel prices – rise in international crude prices and higher central and state taxes. During the pandemic, the central government had raised the excise duty on petrol to Rs 32.98 a litre from Rs 19.98 a litre. A similar increase was affected on diesel, where excise duty was increased to Rs 31.83 a litre from Rs 15.83 a litre. Several state governments too had increased the Value Added Tax (VAT) on fuel during the same period.

Why are crude prices rising?

The price of international benchmark Brent crude was seen at $65.09 a barrel on February 18, as compared to a historic low of $19 a barrel in April 2020 when global demand dropped due to COVID-19 pandemic. In order to push the crude prices up amid lower demand, the Organisation of Petroleum Exporting Countries (OPEC) and allies, including Russia, had cut oil production by 9.7 million barrels per day (bpd) in May 2020.

To further boost prices, Saudi Arabia decided to cut the output by 1 million barrels per day through February and March this year. This cut is considered as the major catalyst to the spike in crude oil prices, coupled with the recovery in demand. Big consumer countries like India have already urged oil producers to ease the cut on crude oil production so that price-sensitive Indian consumers get relief on the fuel front.

What are the major components of fuel pricing in India?

Fuel price includes various components like freight charges, dealer commission, central excise duty and VAT.

In Delhi, taxes contribute to around 60 percent of the petrol price and 55 percent to diesel charges. The petrol price charged from the dealers in Delhi, including the freight charges, comes to only Rs 32.10 a litre, which means that the duties and dealer commissions contribute the remaining part.

Similarly, the price charged from the dealers on diesel works out to around Rs 33.71 a litre. In Delhi, the price of petrol was hiked by 34 paise from Rs 89.88 a litre, while diesel was increased by 32 paise to Rs 80.27 a litre on February 18. Out of this, dealer commissions contribute only Rs 3.68 a litre on petrol and Rs 2.51 a litre on diesel.

What are the fuel prices in neighbouring countries?

Early this month, Rajya Sabha MP Subramanian Swamy took a jibe at the central government stating that ‘petrol price in Ram’s India was higher than the price in Sita’s Nepal and Ravan’s Lanka’.

Based on data available with GlobalPetrolPrices.com, fuel prices in not just these two neighbouring countries, but even Pakistan and Bangladesh are way below Indian rates. On February 15, the petrol price in Sri Lanka stood at Rs 60.29 a litre, Nepal was Rs 69.01, Pakistan Rs 51.12 and Bangladesh Rs 76.43 a litre. Similarly, the diesel price in Sri Lanka was Rs 38.91, Nepal at Rs 58.32, Pakistan at Rs 53.02 and Bangladesh at Rs 55.78 a litre.

The prices of petrol and diesel in India are benchmarked to their international product prices. “Generally, the prices of petroleum products in the country are higher/lower than other countries due to various factors, including the prevailing tax regime and subsidy compensations by the respective countries, ” Petroleum Minister, Dharmendra Pradhan, informed the Lok Sabha regarding a question to the prices in neighbouring countries.

How have fuel and crude prices changed since Modi took charge?

When the Modi government took charge for the first time on May 26, 2014, the petrol price in Delhi was Rs 71.41 a litre and diesel Rs 56.71 a litre. Since then, the price of petrol has gone up by 26 percent and diesel by 42 percent. This is despite a decline in Brent crude prices from $110 a barrel on that day to $65 a barrel now.