Fuel prices have climbed up consistently this year as India’s crude purchase cost increased from about $55/barrel in January to $72.18, or 27%, on Monday. This is set to rise further as international benchmark Brent crude topped $72/barrel on Tuesday and is seen hitting $80 in the coming months.
Price revisions since January have pushed petrol price beyond Rs 100 in seven states. It is nearing the mark in other states. Diesel has hit a century in Sri Ganganagar district of Rajasthan and rising towards Rs 90 a litre in other states.
Crude cost is a factor in the pricing of fuels. Petrol and diesel prices are set according to their international quotes and the rupee-dollar exchange rate. The taxes make all the difference at the pump as they amplify the impact of oil companies raising dealer price.
The dealer price of petrol in Delhi, considered the reference market, has risen by Rs 7.49 from Rs 28.50 a litre in January to Rs 35.99 but the pump price has risen by Rs 12.70 a litre on January 1 to Rs 96.41 on Tuesday.
The dealer price for diesel has gone up by Rs 6.12 a litre from Rs 29.53 in January to Rs 36.65 at present but the retail price has risen by Rs 13.41 to Rs 87.28 during this period.
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 by 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 39% and 32%, respectively, of the current retail price of petrol and diesel in Delhi. VAT accounts for about 22% in Delhi and more in other states such as Rajasthan, Madhya Pradesh and Maharashtra.
Oil minister Dharmendra Pradhan on Monday said the high fuel prices were a problem for the people but taxes were needed to raise resources for funding the fight against Covid-19 and welfare schemes.
The RBI too has sounded alarm over high fuel prices as they stoke inflation and suggested both the Centre and states should work on ways to reduce taxes.