The petrol prices per litre have breached the century mark per litre across many metros recently. It is not the fuel price alone that is burning a hole in the pockets of common citizens. In the past year and a half, prices of several essential items have shot up drastically so much so that tens of thousands of households have their backs to the wall. Grocery store owners said their hands were tied because they were having to buy stuff from wholesalers and distributors at a much higher rate than before, suggesting hoarding. Added to this, the slowing down of the economy, unemployment, job cuts, salary cuts & the Covid-19 pandemic all make it a bitter pill to swallow for the citizen. How will our economy reach the five trillion-dollar milestone & be a Vishwaguru is in itself a million-dollar question. 

On the face of it, the Oil Manufacturing Companies’ decision to resume daily price resetting would appear to be in broad conformity with the pricing deregulation that the Centre has been intermittently committed to ever since the government of the day freed up petrol prices in 2010. However, the timing of the recent moves to raise levies and retail prices by the governments and fuel marketers, respectively, is at odds with logic especially at a point when the country is grappling with the impact of a pandemic. The aim of maximising takings from fuel products to offset shortfalls in other revenue streams can only bear fruit if the petrol and diesel off-take remain unaffected and the rising fuel bill does not end up depleting household consumption budgets. The lockdowns imposed to contain the spread of COVID-19 having severely hit business activity at all levels, the onus is on the governments — both at the Centre and in the States — to facilitate the resumption of economic activity in every manner possible. Given that diesel is the primary fuel for the vast and essential road freight sector, every incremental addition to haulage costs ends up dampening both the transport industry and wider economic revival.

How are fuel prices computed in India?

India meets its domestic oil demand mainly through imports. Fuel prices in India are revised daily based on the changing crude oil prices globally. As global crude oil prices go up, the import cost also increases. But that’s just one reason for the high retail prices. The remainder of the amount is just state and central government taxes. A major reason for the high selling price of petrol is the high levy of local taxes. The Union government levies excise duty and cess on fuel, and states levy a value added tax (VAT).

In 2010, the prices of petrol were determined by the government and were revised every fortnight. In 2014 the price of diesel was also deregulated and since 2017 prices are being revised on a daily basis. Since then, the public sector Oil Marketing Companies make decisions on the pricing of petrol and diesel based on international product prices, exchange rate, tax structure, inland freight and other cost elements, according to a response in the parliament. Some state-run companies such as Indian Oil Corporation Limited Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited fix retail prices of petrol and diesel in the country.

There are mainly four factors that influence the hike in fuel prices. These are (a) Crude oil, freight and processing charges to the dealer. (b) Excise duty charged by the government. (c) Dealer commission to the gas station. (d) Value Added Tax levied by the state government.

India imports about 82% of the required crude oil for its petroleum products. Crude oil is a dark sticky liquid that cannot be used without refining. It is heated until it boils and is then separated into different liquids and gases in a distillation column. This is used to make petrol and diesel. While Brent Crude is the international benchmark price used by the Organisation of Petroleum Exporting Countries (OPEC), West Texas Intermediate is the benchmark for United States oil prices. Since India mainly imports crude oil from OPEC countries, (Iraq, Iran, Kuwait, Saudi Arabia and Venezuela) Brent is the benchmark for oil prices in India. Brent crude is extracted from the North Sea of the Atlantic Ocean whereas West Texas Intermediate is usually extracted from US oil fields in Texas, Louisiana and North Dakota.

Worldwide taxes are levied on fuel. The following figure explains this:

At present India has the highest percentage of tax on both petrol & diesel making it one of the nations with the highest dose of taxation. Taxes now comprise over 69 per cent of the pump price of the two fuels. The following table shows the value of US dollar vs. Indian rupee since May 2014.

Source: Thomas Cook website(https://blog.thomascook.in/1-usd-to-inr-from-1947-to-2020/)

The value of the Indian rupee is largely related to crude oil prices. As oil price increases, the value of Indian currency also decreases, and vice versa. The withdrawal of foreign investors from the Indian market is another contributing factor. Government debts can cause investors to lose interest in the country’s market, resulting in inflation. Factors like these may combine with several others to cause further depreciation of the INR in the future.

Now we compare the international crude oil prices per barrel which is given in the table below for the same period:

Source:(https://www.opec.org/opec_web/en/data_graphs/40.htm)

The comparative prices of petrol in some of the countries are shown in the figure below:

But it is disconcerting that over the three weeks ending June 23, 2014, the spot price of Brent Sea crude rose from around $100 a barrel to more than $115 a barrel. At present, the price of crude oil is $71.32 a barrel. The month wise price of Indian basket crude oil & the retail selling price of petrol and diesel at Delhi during 2014 are given in the table below:

Source: (Reply to RS unstarred question-1090 answered on 4th March 2015 on “Comparative prices of crude oil in 2009 & 2014)-(https://pib.gov.in/newsite/PrintRelease.aspx?relid=116436)

The table below shows the retail selling price of petrol & diesel in Delhi during 2015-16 to 2020-2021 as given by the Petroleum Planning & Analysis Cell. (https://www.ppac.gov.in/). The cut-off date for each year is April 1.

The ordinary citizen will surely then wonder how the retail price of petrol has hit the century mark. The aforesaid tables show a different picture altogether. The fuel prices in the domestic market were supposed to fall as a result. But they are skyrocketing. This is because of the governments’ unscientific taxation policy. At present, petroleum products are under excise duty & VAT. The following table shows the breakup of both petrol & diesel price in Delhi (source: IOC website) that will make the above point clear.

The excise duty for a litre of petrol has risen from ₹9.48 a litre during the previous regime to ₹32.90 a litre in the present regime. The excise duty for diesel has risen from ₹3.56 a litre to ₹31.81 a litre in the same period. The present regime is misleading citizens by saying it has to pay for the oil bonds of the previous regime. The exorbitant rise of taxes is the primary reason for the skyrocketing fuel prices in the domestic market despite a steep fall of crude oil prices in the international market. If taxation is rationalised, the fuel prices would automatically come down. The cess was meant to be used for the development of the oil sector, but this never happened. If the funds had been used for the stabilisation of prices, the recent hike could have been avoided.  In practice, petroleum products are produced in refineries in India. One can understand the case for aligning Indian crude oil prices to international prices because 82% per cent of our requirement is imported. But there is no case for applying this method to oil refining, in which India is more than self-reliant (in fact, private companies such as Reliance export petroleum products). The opposition parties have been highlighting the fact that the whole point in promoting self-reliance is to establish entities in India to act as countervailing forces that would insulate the country from high prices in the global markets. If the current pricing system continues, even if India is completely self-reliant in crude oil and refined products, the consumer would still have to pay prices that are determined globally, even if the cost of production in India is lower. This is the biggest anomaly in the system that prevails, after the dismantling of the APM. In fact, this system is loaded against self-reliance. Even when a downward trend in international fuel prices had been observed, the benefit was never passed on to the people. It was neutralised by a higher incidence of indirect taxation, at both the Central and State levels. The ability of State governments to manoeuvre is far less than that of the Centre. The oil price hike has burdened the already strained State finances and threatens to jeopardise welfare programmes run by State governments.

In a reply to an unstarred question no-4309 in the Lok Sabha on March 22, 2021, the government had to reveal the amounts in tax collection on petrol, diesel & gas as a percentage of the Gross Tax Revenue Budget Estimates; figures show how this has increased. The year wise collection from 2013-14 to January 2021 are given below contained in the annexure to the reply in Parliament:

Conclusion

While income has not gone up, expenses have shot through the roof in hundreds of thousands of Indian households. A family which spent an average Rs 2,500 per month on groceries before the pandemic is now spending Rs 4000 per month. A litre of edible mustard oil which was sold for Rs 120 has now crossed Rs 200. Such a surge in prices has impacted the buying pattern of people as well. The price rise has hit harder because the virus has robbed many of their income and stalled the income of many more. The freezing of central government employees & pensioners dearness allowance given to offset the hike in prices has also added to the overall misery. High prices are also expected to inflate India’s current account deficit. In some States such as Kerala, trawler boat owners once engaged in deep-sea fishing are staring at a bleak future with the price of diesel going continually up and loss of significant number of fishing days owing to COVID-19 restrictions. The steep rise in the price of diesel too has been a big drag on fishing operations. An analysis of LPG hike will be taken up in a separate article.

Some crucial suggestions are being offered for bringing down the fuel prices. One is that the Central government reduce excise duty and also rationalise taxes on petroleum products. Two, the State governments reduce VAT. (Recently Government of Tamil Nadu reduced the price of petrol by three rupees per litre). Three, petroleum products should be brought under GST framework: with the establishment of a price stabilisation fund that can be funded by a cess for every tonne on the oil-prospecting companies like ONGC or Oil India.

The previous government had the vision to start the Indian Strategic Petroleum Reserves Limited (ISPRL)(http://www.isprlindia.com/) in 2005 to maintain crude oil stock. The present regime is not using this even while the oil prices are rising. There are about 55 lakh metric tonnes of crude oil stocked at the ISPRL facilities. It is both strange and questionable why the present regime has not released this stock despite the oil prices going sky high.

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Democracy, anyone?

The post Rising fuel prices: Gov’t tries to obfuscate the truth… again! appeared first on SabrangIndia.

While the world economy is taking a hit due to the Corona virus, India’s economy is suffering even more due to miscalculated steps taken by the Modi regime. This is most evident in how the government has failed to pass on the benefit of plunging oil prices to consumers.

Oil prices have seen the sharpest drop since the Gulf War of 1991 when the prices had declined over 31 percent. For a monthly average of nearly $66 per barrel in December 2019, the prices of crude oil were down at $34.70 as on March 11, 2020. Now, given how we get almost 85 percent of our crude oil by importing it, the drop in oil prices should have brought good news. But the Modi government has successively raised excise duties to collect more taxes.

Petroleum is outside the ambit of the Goods and Services Tax (GST). During the period of November 2014 to January 2016, the period of declining oil prices, the excise duty had been raised nine times through which the government lapped up over 10 lakh crore. Different states that levy Value Added Tax (VAT), anywhere from 6 percent to 39 percent, earned a revenue of 3.1 lakh crore during that period.

Though the government has given out miniscule price cuts of 12 paise a liter on petrol and 14 paise a liter on diesel, last week, on Saturday, the Central Board of Indirect Taxes and Customes raised special excise duties on petrol by Rs 2 to Rs 8 per litre and to Rs 4 a litre from Rs 2 in case of diesel. Additionally, road cess was raised by Re 1 per litre each on petrol and diesel to Rs 10. This is now taken up the total excise duty on petrol to Rs. 22.98 per liter and that on diesel to Rs. 18.83 per liter. This in addition to the state and other local taxes that consumers are required to pay for fuel. The move is set to fetch the government an estimated Rs. 39,000 crore in additional revenue.

Comparing to the last time the oil prices were this benign when crude oil prices hovered at around $35.68 per barrel, the retail price of petrol was at Rs. 59.98, nearly 15 percent lower than today’s rates and the price of diesel was Rs. 46.09 per litre, almost 27 percent lower than today, reported Business Today.

While the calls of lowering retail prices amid an almost 50 percent reduction in crude oil prices, they are falling on deaf ears. Against the global reduction in prices, the prices of petrol and diesel have only gone down by 7 percent and 8 percent this year respectively. Though oil manufacturing companies have reduced the oil prices by a bit to offset the excise duty hike, they are still lower than the decline in crude oil rates.

However, apart from a hike in taxes, foreign exchange rates too are playing havoc with the prices. In December 2015 while one was required to pay Rs. 64.8 per dollar, today the number stands at Rs.73.81, a 14 percent increase. This translates to India paying more for a dollar in payments for oil barrels, thus cutting the benefit of lower crude oil prices.

This doesn’t mean prices haven’t come down at all. Diesel is now available at a 13-month low and petrol has been at its cheapest since July 2019, but prices are still steep and lower taxes can benefit not only end consumers, but also the economy as a whole. 

Finance Minister Nirmala Sitharaman’s silence on whether the price cuts will benefit consumers too confirms the strategy of the government.

Look how Finance Minister Nirmala Sitharaman reacted to an important question by @TweshMishra on benefits to consumers by lowering the excise duty as the crude prices had reduced. pic.twitter.com/aJlbFyS5eU

— Mohammed Zubair (@zoo_bear) March 14, 2020

Therefore, with central and state governments hiking up their taxes, along with a hike in dealer commissions, the petrol and diesel rates haven’t seen any  real reduction. Besides, the government which is taking a hit from the collection of property taxes due to the slump in the real estate sector, is probably looking to fill up its coffers by imposing high taxes on fuel.

Speaking to reporters, DK Aggarwal, President PHD Chamber of Commerce and Industry said, “At this juncture, we suggest a reduction in excise duties and VAT on petroleum, diesel and allied products by at least 25 percent, to bring down the prices of petroleum products, which will be a big relief to the industry, will boost and kick start economic growth, while reviving the spirit in the economy. This reduction in excise and VAT would reduce the prices of petrol and diesel by Rs 9-10 per litre and help lower inflation, boost consumer spending, make Indian industry competitive and boost overall revenue benefiting the government, industry and economy.”

Political parties too are slamming the Modi government over the excise duty hike. CPI (M) Kerala State Secretary Kodiyeri Balakrishnan demanding an immediate withdrawal of the hike, told reporters, “The decision to raise the price comes at a time when people were worried about COVID-19 is a gross injustice to the people.”

However, the most significant criticism came from Congress leader Rahul Gandhi who tweeted the following.

Just 3 days ago I had requested @PMOIndia to pass on the benefit of the global oil price crash to Indian consumers, by slashing the prices of petrol & diesel in India. Instead of heeding this advice, our genius has gone and hiked #exciseduty on fuel! pic.twitter.com/lGEQosS9JE

— Rahul Gandhi (@RahulGandhi) March 15, 2020

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Inflation and Oil: What ails India’s economy?

Why is Modi govt increasing domestic prices when international crude oil prices have fallen sharply?

The post Petroleum prices plunge globally but Modi gov’t hikes excise duty appeared first on SabrangIndia.

Strangely, while international crude oil prices are falling sharply, the Narendra Modi government, as is its wont, has increased the excise duty on

petrol and diesel. This is another aassault on people already suffering under economic recession.

The special excise duty on petrol has been hiked by Rs 2 to Rs 8 per litre in case of petrol and to Rs 4 in case of diesel. For every litre of petrol

the excise duty is Rs. 22.98 and on diesel it is 18.83. Simultaneously, the road cess on petrol has also been raised by Rs 1 per litre each on petrol
and diesel to Rs 10.

While dismantling the Administered Pricing Mechanism, the country was told
that the benefits of a fall in crude prices would be passed on theconsumers. On the contrary, since the BJP assumed office in 2014, duties on
petrol have increased by 142 per cent and on diesel by a whopping 429 per cent.

Confronted with a recession in the economy which has been compounded by the huge health concern that the Corona pandemic has created, it would have been in the fitness of things if the benefit of the fall in prices were passed on to the already overburdened consumer.  This, however cannot be expected from a government which is oblivious to the concerns of the common man and is

more concerned in promoting the interests of corporates and its cronies.

Apart from others,  the CPI(M) has called for the withdrawal of this criminal hike in excise duty of petrol and diesel. Retail prices must be lowered to levels corresponding to the fall in the international prices, i.e. by 30 per cent.

The post Why is Modi govt increasing domestic prices when international crude oil prices have fallen sharply? appeared first on SabrangIndia.

After increasing prices by 25% in the past 15 months, a cut of 3% is nothing but a desperate stunt that fools nobody.

 

The post Cut in Petrol/Diesel Prices – Are You Joking Mr Jaitley? appeared first on SabrangIndia.

 

The post Bharat Bandh against Rising Fuel Prices Widely Supported across Several States appeared first on SabrangIndia.