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Fuel prices break all records in India! 43 hikes, 4 cuts this year

Retail prices of petrol have gone up by Rs 10.78 per litre in this year so far, while diesel prices are up by Rs 11.51 per litre. Centre's excise duty today accounts for Rs 32.90 and states' VAT for another Rs 21.81 for every litre of petrol in Delhi

With petrol prices breaching Rs 100 per litre and diesel also nearing that level, a clamour for a cut in taxes has intensified With petrol prices breaching Rs 100 per litre and diesel also nearing that level, a clamour for a cut in taxes has intensified

KEY HIGHLIGHTS

  • Petrol prices have crossed Rs 100 per litre in 135 districts in the country
  • Prices have gone up by 12.5% at Rs 10.78 per litre in petrol and 15.4% at Rs 11.51 per litre in diesel.
  • It has lagged Indian basket crude oil price which has gone up by over 22% in 2021 so far.
  • High MRP also because of taxes which account for 58% in petrol and 52% in diesel prices. A cut looks unlikely.

A string of 43 hikes this year as compared to just four cuts has seen prices of petrol and diesel break all records in India this year. Petrol prices have now broken the psychological Rs 100 per litre mark in as many as 135 districts in the country, including all the cities in states like Rajasthan, Maharashtra and Madhya Pradesh.

In all, retail prices of petrol have gone up by Rs 10.78 per litre in this year so far, while diesel prices are up by Rs 11.51 per litre. At the start of the calendar year, petrol prices hovered at Rs 84 per litre in Delhi but have risen by 12.5 per cent so far, while diesel prices, which stood at Rs 74 per litre on January 1, 2021, have gone up by 15.4 per cent. It still lags behind the increase in international crude prices (Indian basket), which has gone up over 22 per cent from $54.79 per barrel in January to $ 66.95 per barrel in May.

 

The sequence of price hikes has, however, followed an uneven pattern this year. In January and February, prices were hiked 10 and 16 times, respectively, with retail prices of petrol rising by Rs 2.59 and Rs 4.87 per litre, respectively. Diesel prices went up by Rs 2.61 and Rs 4.99 per litre, respectively. There was no reduction during these two months.

The trend of price hikes was paused in March and April, just after the election dates for five states -- West Bengal, Tamil Nadu, Assam, Kerala and Puducherry -- were announced on February 27. Instead, prices were reduced three times in March and once in April, leading to a fall in petrol prices by Rs 0.61 and 0.16 per litre, respectively, and diesel by Rs 0.60 and Rs 0.14 per litre, respectively. Prices were hiked again in May 16 times, with petrol rising by Rs 3.83 per litre and diesel by Rs 4.42 per litre. On June 1, petrol and diesel saw another hike, amounting to total 43 hikes in just over five months this year.

 

Also read: Elections over! Petrol, diesel prices shoot up again

Even with the rise in international crude prices, retail prices in India need not be so high across India. Petrol and diesel that are not part of GST attract excise duties from the Centre and VAT from states that make them one of the highest-taxed commodities in the country. In the last few years, these taxes have been raised on several occasions making the fuels one of the highest taxed in the world. Between FY15 and FY20, for example, excise duties were raised a record 12 times and lowered only twice.

In the summer of 2020, as the country went into a lockdown, the government once again turned to oil to shore up its revenues. Global crude prices turned negative for the first time in the US in April 2020. The price of the Indian basket also declined to a low of just $19.9 per barrel but consumers in India, locked in their homes, never got the benefit of such rock-bottom prices. On May 5, duties on petrol were hiked by Rs 10 per litre and on diesel by Rs 13 per litre. It was the steepest-ever hike in one go in transport fuel in India.

As a result, the central government's excise duty today accounts for Rs 32.90 or nearly 35 per cent with the state government's VAT accounting for another Rs 21.81 or another 23 per cent of the retail price of every litre of petrol in Delhi. Similarly, in diesel, excise duty accounts for Rs 31.80 or over 37 per cent and VAT Rs 12.50 or 14.6 per cent of every litre in Delhi. In all, taxes make up 58 per cent of petrol and 52 per cent of diesel prices in Delhi today.  

This has bolstered the government's fiscal report card, which has otherwise been undermined by low economic activity. Excise duty revenues jumped over 35 per cent to Rs 3,61,000 crore in 2020/21, against the budgeted estimate of Rs 2,67,000 crore. Part of this was collected through cess under the Central Road and Infrastructure Fund (CRIF), which the Centre does not need to share with states.

Also read: Fuel rates hiked again; petrol now costs Rs 100.47 per litre in Mumbai

In the fiscal year 2021, the Centre had estimated it would pocket Rs 2,31,132 crore, 83.3 per cent higher than its budgetary estimate of Rs 1,26,076 crore, which it had presented in February last year. There was no spectre of coronavirus at that time. For the sake of comparison, in 2019/20, the government had collected a relatively modest Rs 90,252 crore under the CRIF.

With petrol prices breaching Rs 100 per litre and diesel also nearing that level, a clamour for a cut in taxes has intensified. It may have been possible if the economic recovery in the latter half of fiscal 2021 continued in the current year. But the second wave of the pandemic and its likely impact on growth means the government may again be hard-pressed for cash. Already, for 2021/22, it has budgeted an excise revenue of Rs 3,35,000 crore, an over 25 per cent rise over 2020/21.

Also read: Global oil prices climb up on bright fuel demand outlook; Brent reaches $68.79 per barrel

"This is a vexatious issue in which no answer other than price cut will be able to please the public," Finance Minister Nirmala Sitharaman had said on February 20. "It is a question which I would like states and the Centre to talk about because it's not just the Centre that has duties on petroleum products, it also has the states charging. So, there is an issue that is layered and as a result that has to be a matter ideally for the Centre and the states to talk about."

Also read: Fuel demand plunges in May due to COVID-19 lockdowns, shows data