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Govt, OMCs earn Rs 730 crore a day with petrol, diesel price hike; trend to continue for a year

Diesel prices on Monday were hiked by 13 paise a litre and petrol prices by 5 paise per litre. Including Monday's hike, the prices have been hiked for twenty two times in a month, amounting to about Rs 9.17 for petrol and Rs 11.14 for diesel

twitter-logoPB Jayakumar | June 29, 2020 | Updated 16:49 IST
Govt, OMCs earn Rs 730 crore a day with petrol, diesel price hike; trend to continue for a year
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Key Highlights

  • Petrol and diesel retail prices kept creeping  up slowly for last 22 days
  • The trend likely to continue for over a year till Indian economy recovers
  • Governments and OMCs may be gaining Rs 730 crore a day technically from the hike
  • But, consumption is mostly by government-run vehicles
  • Revenue starved Centre and states lack big alternate revenue streams

The petrol and diesel retail prices have been creeping up slowly for the past 22 days. If some experts are to be believed, the trend will continue for at least a year until India and the world recover from COVID-19 pandemic and the resultant battering of the economy.

Going by rough estimates, they say, the government and the oil marketing companies are technically gaining  about Rs 730 crore a day because of the price increase that has happened in the past one month. However, actual gains are insignificant. "Assuming that India's crude imports averaged around 4.5 million barrels per day in 2019 and retail consumption after COVID-19 shrunk by 50 per cent to 2.25 million barrels per day, the gain may be about Rs 730 crore a day. But that is nothing for a huge economy like India and is irrelevant to a large extent, as present consumers are mostly government vehicles," said Deepak Mahurkar, Partner and Leader, Oil & Gas, PricewaterhouseCoopers (PwC).

Motor Spirit (MS) and high-speed diesel (HSD) account for about 50 per cent of retail sales (a barrel is about 750 litres) in India and calculations are based on sales assumption of about 1.1 million barrels per day. The total tax components stand at around 69 per cent.

Diesel prices on Monday were hiked by 13 paise a litre and petrol prices by 5 paise per litre. Including Monday's hike, the prices have been hiked for twenty two times in a month, amounting to about Rs 9.17 for petrol and Rs 11.14 for diesel. The price of petrol in Mumbai is at Rs 87.19 per litre and that of diesel at Rs 78.83 per litre. In Delhi, a litre of petrol costs Rs 80.43 and diesel Rs 80.53.

Experts say what the government gained from the hike is irrelevant as the price rise is for a commodity that has hardly any demand from the public as of now. Most parts of main cities like Mumbai, Delhi and Chennai and other tier-2 cities like Pune are under lockdown. Current retail consumption of fuel is mostly for essential government services and transportation of essential commodities. Private vehicles are rarely plying on roads. Industrial activities are yet to regain normalcy. Revenue sources for both the Central and state governments have dried up. GST collections are poor and state governments are dependent only on lottery or liquor to earn revenues.  

National capital Delhi increased VAT on petrol from 27 per cent to 30 per cent and that on diesel from 16.75 per cent to 30 per cent on May 5. The Central government on May 6 had raised excise duties by Rs 10 per litre on petrol and Rs 13 per litre on diesel, when global crude prices were hovering near $24 a barrel. According to the government, of the Rs 10 per litre increase in duty on petrol, Rs 8 will be a road and infrastructure cess and the remaining Rs 2 will be special additional excise duty. Similarly, for Rs 13 per litre duty increase in diesel, Rs 8 will be road and infrastructure cess and remaining Rs 5 will be a special additional excise duty.

Sources pointed out that the Indian oil marketing companies (IOCL, BPCL and HP) did not pass on the benefit of historic fall in global crude oil prices a month ago to the public, as consumption was very poor. They predict global crude prices may remain at about $40 a barrel in the coming months, though some US states and European nations are again considering lockdown due to spike in COVID-19 cases, which can lead to less consumption of oil and fall in global crude oil prices.

For India's leading refiner IOC, the refinery utilisation improved from 55 per cent in early May to 90 per cent now. It is expected to reach 100 per cent by July-end. "IOCL built more crude inventories at 9.8/11.4/10.2 million metric tonnes (mmt) as on of Apr/May/Jun 1 versus 8mmt normal rate under lower prices. The same should see gains as oil prices go up now. It will normalise back to 8mmt by July," said an analyst report from Emkay Global.

Also Read: Petrol price hiked by Rs 9.17, diesel Rs 11.14 since June 7; fuel rates cross Rs 80 in Delhi

Also Read: Oil prices plunge for second straight session as coronavirus cools demand

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