Petrol price: High taxes adding fire to fuel as prices continue to spiral

Petrol price: High taxes adding fire to fuel as prices continue to spiral

In Mumbai, petrol price rose to Rs 90.34 a litre and diesel Rs 80.51 on Tuesday, marking one of the highest fuel prices in the country.

NEW DELHI: Fuel prices have started to pinch consumers harder as petrol has become costlier by nearly 4% and diesel about 5% in the last 18 days as high Central and state taxes amplified the impact of buoyancy in global crude on hopes of early revival in demand following the success of Covid-19 vaccine candidates.

Petrol has become costlier by Rs 2.65 per litre and diesel by Rs 3.41 to sell at Rs 83.71 and Rs 73.87 a litre, respectively, in Delhi since the state-run fuel retailers began revising pump prices from November 20. In Mumbai, petrol price rose to Rs 90.34 a litre and diesel Rs 80.51 on Tuesday, marking one of the highest fuel prices in the country.

The upward revision has been prompted by an upswing in crude prices since October 26 as the success of Covid-19 vaccines lifted the market. Benchmark Brent spiked 1.6% to $48.61 per barrel last Wednesday, the highest since March, before the oil markets closed for the Thanksgiving holiday. Since then, however, oil has been hovering around the same level, rising a tad to $48.76 on Tuesday.
Since fuel prices are benchmarked to a 15-day rolling average of global refined products’ prices and dollar exchange rate, pump prices can be expected to remain northbound over the next few days even if crude hovers at the current level.

As the impact of this rally began hitting home, high fuel taxes amplified the effect. For consumers, the high excise duty and VAT, which make up 63% of petrol and 60% of diesel prices, makes the pinch harder due to their incremental increase after every hike in the base price. Available data shows when a litre of petrol last sold for Rs 81.06 in Delhi on November 19, consumers paid Rs 51.69 as taxes. At a price of Rs 71.46 a litre for diesel, consumers paid Rs 42.59 in taxes.

The Centre had raised excise duty on petrol by Rs 13 per litre and diesel by Rs 16 in two tranches on March 16 and May 5. Pump prices remained unchanged as oil companies offset the higher taxes against the profit from the historic crash in crude prices as demand tanked when economies around the world shut down. Several state governments, including Delhi, Maharashtra, Karnataka and Punjab also jacked up VAT.

Higher oil price is also bad news for the government, which is stretched for cash as it struggles with the pandemic’s economic downside.

Costlier crude will jack up India’s oil import bill, shrinking the financial headroom the government enjoyed from the protracted spell of the subdued oil market that followed the historic oil price crash in April.

For example, the oil import bill stood at Rs 93,466 crore in the April-July period, or the first four months of the current financial year. This is 62% lower than Rs 2.51 lakh crore in the comparative period of 2019. In dollar terms, the bill stood at $12.4 billion, marking a saving of 65.7%.

To put the figure in perspective, the near-Rs 1.6 lakh crore saving in the January-July oil import bill is the same as the Rs 1.7 lakh crore tab for the Covid relief package announced for the poor in March. Surely, the government does not buy oil. But cheaper oil has a positive impact on macroeconomic parameters, which reduces drag on government finances and frees up resources for welfare.

https://energy.economictimes.indiatimes.com/news/oil-and-gas/petrol-price-high-taxes-adding-fire-to-fuel-as-prices-continue-to-spiral/79635484

Leave a Reply