Nagpur: Petrol prices in India have fallen by 20 per cent from Rs 75 per litre in June 2014 to Rs 66 per litre in December 2015. During the same time, Brent crude prices have crashed over 60 per cent from $110 per barrel to around $42 per barrel. (Read)
Brent prices are currently trading at a seven-year low, but the same is not true for petrol and diesel prices. Petrol prices have not fallen below Rs 60/litre for a sustained period of time since May 2011.
There are two big reasons why the drop in petrol and diesel prices has not kept pace with the crash in global crude prices.
1) Rupee: India imports nearly 80 per cent of its energy needs, so the exchange rate plays a huge role in determining the landed cost of fuel. In June 2014, the rupee traded around 60 per dollar, but the currency has steadily depreciated to a two-year low of around 67 per dollar over the last 18 months. The weakness in the rupee increases the landing cost of crude in India.
2) Taxes: The Modi government has steadily raised taxes on petrol and diesel to increase revenue collection. Excise duty on petrol and diesel has more than doubled since the government came to power in May 2014. Excise duty on petrol was Rs 9.48 per litre in April, 2014, which after five rounds of hikes has risen to Rs 19.06. Similarly, the excise duty on diesel was Rs 3.65 per litre in April, 2014 which after five rounds of excise duty hikes has risen to Rs 10.66.
A litre of petrol in Nagpur costs Rs 66.09, nearly a third of which is made up of excise duty. Another Rupees added is on account of local sales tax or VAT. The cost of producing petrol is just Rs 23.77 per litre but after adding company margin, petrol pump dealers commission and taxes, it sells for Rs 66.09. Petrol pump dealers are paid a commission of Rs 2.26 on sale of every litre of petrol and Rs 1.43 on diesel.
