A recent trip to the fuel station prompted one Indian consumer, Raj, to question the breakdown of petrol prices. After purchasing 21.1 liters of petrol for Rs 2,000 in Delhi, he began to consider where his money was going – to the petrol company, the government, or the fuel itself – and the impact of global events like the conflict involving the United States and Israel in Iran.
Understanding the Cost of Petrol
The per-litre price of petrol broadly includes the cost of importing and refining crude oil, central excise duty, state taxes, and commission paid to the dealer. The specific rupee value of each component varies by city and retailer, and changes may or may not be passed on to consumers depending on government decisions regarding global oil prices.
On Friday morning, the government reduced the special excise duty on petrol and diesel. This brought the tax on petrol down to Rs 3 per litre and eliminated it entirely for diesel. However, Raj paid Rs 94.77 per litre, the same price as the previous week.
Central Excise Duty Breakdown
The central government’s excise duty on petrol was reduced from Rs 21.90 to Rs 11.90 per litre, and on diesel from Rs 17.8 to Rs 7.8 per litre. The breakdown of central taxes on a litre of petrol is as follows: Basic Excise Duty (Rs 1.4), Special Additional Excise Duty (Rs 3, reduced from Rs 13), Agriculture Infrastructure & Development Cess (Rs 2.5), and Additional Excise Duty (Road and infrastructure Cess) (Rs 5). For diesel, the breakdown is: Basic Excise Duty (Rs 1.8), Special Additional Excise Duty (Rs 0, reduced from Rs 10), Agriculture Infrastructure & Development Cess (Rs 4), and Additional Excise Duty (Road and infrastructure Cess) (Rs 2).
The central excise on petrol and diesel has been steadily reduced since May 2020.
The price of Brent crude – the global benchmark – has risen dramatically, increasing from US$68.13 per barrel on February 28 to US$81.38 a week later, and exceeding US$100 on March 7. India’s crude basket, a weighted average of benchmarks including Oman, the UAE, and Brent, has increased from US$69.01 per barrel in February to US$123.15 as of March 24.
Oil marketing companies were reportedly spending up to 78.45 per cent more on procuring crude oil, resulting in estimated per-litre losses of Rs 48.8, according to Japanese firm Nomura.
State Taxes and Dealer Commission
State-imposed duties contribute to price variations between cities. Each state adds its own sales or VAT to the base price and central excise duty. Dealer commission, typically between Rs 2.5 and Rs 4.5 per litre, covers costs like profit margins, wages, and station maintenance.
The factors influencing petrol and diesel prices are numerous, both domestically and internationally. The conflict in Iran has driven Brent crude to a nearly four-year high, contributing to increased costs globally. Similar price increases have been observed in the US, Europe, and parts of Africa, with the Philippines declaring a national energy emergency.
India has accelerated the signing of contracts to diversify its crude oil and LPG imports. The country relies on the Strait of Hormuz for an estimated 40 to 50 per cent of its crude oil imports, approximately 2.2 to 2.8 million barrels per day.
Frequently Asked Questions
What components make up the price of petrol?
The price of petrol includes the cost of importing and refining crude oil, central excise duty, state taxes, and commission paid to the dealer.
How has the government responded to rising crude oil prices?
The central government cut special excise duty by Rs 10 per litre for petrol and diesel, bringing the tax down to Rs 3 per litre for petrol and zero for diesel.
Why didn’t the excise duty cut immediately lower prices at the pump?
The excise duty cut was intended to help oil marketing companies offset soaring crude oil prices due to the conflict involving the United States and Israel in Iran.
Considering the complex interplay of global events and domestic policies, how might fluctuations in crude oil prices impact your personal budget in the coming months?
