Why are petrol and diesel prices in India so high?

With petrol and diesel prices shooting through the roof each day, it is never too late to ask: why are Indians paying so much money for petrol and diesel?

 |  3-minute read |   22-10-2021
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As the world’s 3rd largest crude oil consumer in the world, crude oil fuels many Indian dreams. With consistent rise in global fuel prices, abominable taxes on fuel (160%) and politics for profits, Indians are now paying 3 digit figures per litre for fuel. Here is how fuel prices have changed by 30% over the last year:

Fuel Prices shoot through the roof. Photo: Getty Images

Fuel Prices shoot through the roof. Photo: Getty Images

FUEL PRICES AS ON OCT 22, 2021 vs OCT 20, 2020 (amount in Rs)

 

2021

2020

Change

2021

2020

Change

Cities

Petrol

Diesel

Mumbai

112.78

87.8

28%

103.63

78.08

33%

New Delhi

106.89

81.12

32%

95.62

71.64

33%

Chennai

103.92

84.19

23%

99.92

77.04

30%

Bengaluru

110.61

83.75

32%

101.49

75.85

34%

Kolkata

107.44

82.65

30%

98.73

75.14

31%

Jaipur

113.75

88.27

29%

105.01

80.529

30%

Hyderabad

111.81

84.31

33%

104.32

78.09

34%

Lucknow

103.86

81.52

27%

96.07

71.89

34%

Patna

110.55

83.77

32%

102.31

77.08

33%

Gurgaon

104.49

79.3

32%

96.37

72.11

34%

 

So why are Indians paying so much for petrol and diesel?

As per Petroleum Planning & Analysis Cell, India imported 198.11 million tonnes of crude oil in 2020-2021, and produced 31 million tonnes of fuel. As India imports the majority (80%) of its fuel and has not found enough oil fields of its own, India pays an extreme price.

India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil. As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices.

In 2020, OPEC nations like Iraq (47 mn), Saudi Arabia (38 mn), United Arab Emirates (22 mn), Kuwait (9.9 mn) along with USA (10.7 mn) helped India with fuel. As on October 21 this year, the cost of an oil barrel in the international market (WTI crude) touched Rs 39/litre, whereas in October 2020 the price was Rs 19/litre. So why are Indians paying Rs 111 for the same?

Prices touch Rs 112/litre. Photo: Getty ImagesPrices touch Rs 112/litre. Photo: Getty Images

As per research reports by India’s leading credit rating agency CARE, the government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%). The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.

Here is an approximate break-up (in Rs):

a)Base Price

39

b)Freight

0.34

c) Price Charged to Dealers = (a+b)

39.34

d) Excise Duty

40.17

e) Dealer Commission

4.68

f) VAT

25.35

g) Retail Selling Price

109.54

Photo : PTIPhoto : PTI

So what is the government doing?

The government has approved 100% Foreign Investment for Oil & Gas PSUs, and aims to build storage tanks to offset high fuel prices. It plans to commercialise 50% of its petrol reserves, and has allocated Rs 1078 crore in the 2021 Budget to provide a subsidy to its company, Bharat Petroleum Corporation Ltd.

THE O: The government needs to spend more on finding new oil fields at home to reduce costs and explore new markets to diversify supply. It needs to rethink high taxes (even if it is the government’s largest revenue contributor), and also find a way to reduce dependence on oil.

Writer

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