Why are Indians paying more for petrol and diesel?
So Indians have been paying more for petrol and diesel, especially over the past couple of months. As we’ve seen a number of hikes in the price of petrol and diesel. The immediate cause for this as the government has been saying is an increase in international crude oil prices. But the larger impact on fuel prices. Is due to hikes in central and state taxes on petrol and diesel over during 2020, so the center particularly raised taxes on petrol by ₹13 per little and on diesel by ₹16 per liter. This is had by far the largest impact on prices today. They’ve been hitting record highs already in January and they continued to go up today.
Why are crude oil prices rising now?
So international crude oil prices took a major hit due to the COVID pandemic. Brent crude, in particular, came down to below $20 per barrel due to lower demand due to the pandemic and a number of countries imposing travel restrictions, slowing down their economies. But in July. Uh, prices came to around $40 per barrel and stayed around that level till October.
Since then, however, we’ve seen a steady increase in the price of crude oil from $40 to now over $60 dollars a barrel, and this has been due to a number of factors, including optimism about the vaccine as the rollout goes on, we are seeing expectations for more countries that the demand for petrol and diesel and all fuels will go up. Besides this oil-producing countries have been very disciplined with their production.
They have maintained in many cases the cuts that they had made during the pandemic to keep the price is somewhat elevated. In fact, Saudi Arabia even announced that they would be cutting there but. Their daily production of crude oil by 1,000,000 barrels per day through February and March to keep prices elevated. So these are the key reasons why we’re seeing the price of crude oil go up now.
How are taxes impacting retail fuel prices?
So what we’re seeing now is that taxes are in fact the largest component of our fuel prices across major cities. If we take the example of Delhi, the price of petrol,
for example from the refinery gate to the dealer, is only around ₹32 per liter. but updates of the taxes, the excise duty alone itself is around ₹33 per liter more than the actual price. Besides this, consumers are also paying the state tax, which is another ₹20.5 per liter. So this leads to us seeing taxes accounting for in. In the case of Delhi, in the case of petrol. About 170% of the base price of petrol and this is mirrored across a number of cities in Mumbai. The incidence of taxes is even higher from the state level leading to even higher prices.
How has tax revenue from petroleum products changed over the years?
Tax revenue from the sale of petrol and diesel or a key part of receipts for both the center and the states. So looking at the center’s receipts, tax revenue, actual tax revenue from the sale of petrol and diesel was about ₹2.2 trillion.
In FY20, and it was budgeted about ₹2.48 trillion FY21. But due to the pandemic, the government raised taxes, excise duty hikes as we mentioned earlier and it went up to around ₹3.46 trillion and this is expected to go up slightly even further to 3.7 trillion. So that would make it over 50% hike if we’re looking at budget estimates for the previous risk to this fiscal. So the government is increasingly depending on petrol and diesel to make up for shortfalls across taxes, particularly in GST and other indirect taxes
How does this situation compare with other countries?
So our taxes account for about 60% of the pump prices of petrol in particular in India in Delhi right now. This is largely comparable to some extremely developed economies to Germany in Italy, where they’re coming from at 65% to 62%.
but are significantly higher than taxes in countries like Japan, where taxes are at 45%, and taxes in the US, where there is around 20% of the pump price.