Published On : Thu, Sep 14th, 2017

Ache din: Crude oil rates decrease by half; petrol diesel at three year hike

Petrol Price

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In an ironical observation, it has been discovered that although, the cost of crude oil, in international market, has reached half of the price in past three years, price of petrol and diesel have reached its highest since 2014. The reason? Excise duty on the same has been increased by 26 times in a span of three years.

Since the Narendra Modi led NDA has come into power, price of crude oil has declined by 53 percent. However, the price of petroleum, on the contrary, has seen a steady rise. The price of petrol and diesel are at a rocket high altitude of Rs. 80 and Rs. 65 respectively in Nagpur.

The NDA government leading the nation seems to be insensitive about this price rise which is burning holes in the pockets of the Middle class strata. But the rising prices of fuel have indeed started pinching the common man and the growing discomfort is palpable.

Three years before, when the crude oil price stood at $ 108 per barrel (1 barrel=159 litres), petrol and diesel remained at Rs. 71 and Rs. 50 per litre. The rate of petrol and diesel are idyllically dependent on crude oil price in International market. However, the same, is not being witnessed in India. In 2016, the prices of crude oil had reached as low as $ 28, the petroleum price, however, witnessed only an increasing fluctuation.

The price of crude oil today, has declined to $54 in International market (which was $108 in 2014), still the rate of petroleum is at a sky high level. “The per barrel cost of petrol and diesel is decided at a National level and we do not have a say in it. The details of price after imposed taxes and costs are fed online on the website of the distributor company from where we get the rate. The exact functionary of the calculation is known to only to the government and companies”, said Harvinder Singh Bhatia, President, VPDA (Vidarbha Petroleum Dealers’ Association).
Nagpur Today, conducted a small research to understand this irony.

Increase in Excise Duty, the main reason:
The main reason behind this increase is being considered the sturdy increase in Excise duty by the central Government (The excise duty is defined as the tax levied by the government on the items that are produced within the country of India). Instead of giving the benefit of decreased prices to the consumers, the government has appeared to be interested in filling its own pockets. Instead of decreasing the prices, the Excise Duty and VAT have been increased. The Excise duty on petrol and diesel has been amplified by Rs. 11.77 and Rs. 13.47 respectively.

Let’s see the real math:
At present, crude oil price remains at $54 per barrel, adding the transportation cost of $2 per barrel, the lands the cost to $56 per barrel.

Given the exchange rate of Rs. 64 per dollar, the cost becomes Rs. 3,584 per barrel (64×56=3,584).
Likewise, considering that 1 barrel= 159 litres, the cost of one litre crude oil comes to Rs. 22.53 (3,584/159= 22.54)

Thus, the question arises why are we paying Rs. 80 and Rs. 65 for the petroleum which is being extracted from crude oil of Rs. 22.53 per litre?

The reason is the extra taxes and costs added to the price crude oil. Understand the math by the table below:

The actual price mechanism:

Diesel prices are calculated the same way.

Around 57 percent on taxes:
The cost of refining petrol and diesel from crude oil is nearly Rs. 3.50 per litre. On adding the transportation of Rs. 3 per litre is rises to Rs. 29.05 per litre. Later the imposition of Excise duty of Rs. 25.00 and VAT Rs. 21.00, the cost becomes nearly Rs. 80.22.

No GST on Petrol:
At present petroleum is not included in the GST’s vicinity. If so happens, a complete tax of 28 percent will be imposed, bringing the petroleum price to Rs. 44 per litre. However, looking at the scenario, it does not appear to be happening anytime soon.

Why Rs. 21.00 as VAT?
What is appearing cynical is that the Chief Minister Devendra Fadnavis and State Finance Minister Sudhir Mungantiwar, aware of the scenario, do not seem to be taking any action for reduction of petrol prices. If the petroleum products are not included under the umbrella tax of GST, the state and the centre can take an initiative to, at least, lower the VAT to ease the burden on middle class’ budget. The state and centre, however, appears busy in enlarging its own treasures.

Merely Excise Duty and VAT account to 46 percent of the total taxes. It is yet to be seen when the agony of consumers is heard and acted upon by the power bearers.