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Petrol crosses Rs 87 per litre in Delhi for first time; taxes account for 61.3% of price

While the current round of price hikes can be blamed on global trends, fuel prices in India are already at elevated levels thanks to a steep and frequent increase in excise duties and VAT in the last few years

twitter-logoSumant Banerji | February 12, 2021 | Updated 08:18 IST
Petrol crosses Rs 87 per litre in Delhi for first time; taxes account for 61.3% of price
In this fiscal so far, prices of petrol have gone up by Rs 17.71 per litre or over 25 per cent as excise duties have been hiked by Rs 13 per litre

Key highlights:

  • Prices of petrol have hit a new high of Rs 87.30 per litre in Delhi breaching the Rs 87 mark for the first time ever
  • Diesel prices have also gone up by Rs 3.61 per litre since the start of the year at Rs 77.48 per litre
  • The surge in prices is due to increase in global crude oil price which is currently at a 12 month high of near $ 60 per barrel
  • Global crude prices have rallied this year on hopes of a stimulus package in the US and supply cuts by Saudi Arabia and other members of OPEC

Petrol prices hit a new high of Rs 87.30 per litre in Delhi, breaching the Rs 87 mark for the first time ever, as global crude oil prices surged to near $60 per barrel for the Indian basket on the back of hopes of a fresh stimulus package in the US and supply cuts from key oil producing countries.

Petrol prices have risen by nearly Rs 1 per litre in this month alone and by Rs 3.6 per litre since the start of the year. This is again largely on the back of rising crude oil prices which were hovering at just under $50 per barrel (Indian basket) at the end of last year. Diesel prices have also risen to Rs 77.48 per litre in the national capital, up by Rs 0.65 since the start of the month and Rs 3.61 per litre since the start of the year. It is still off its peak of Rs 81.94 per litre of July 2020.

The surge in global crude prices follows the decision by Saudi Arabia, world's largest oil producer, that it would cut supplies further in February and March. This came on the back of the decision by OPEC and its partners to go slow on oil supplies in a bid to deplete reserves of consumers and shore up prices. The strategy seems to be working. Since the end of October last year, crude prices have increased by over 47 percent.

While the current round of price hikes can be blamed on global trends, fuel prices in India are already at elevated levels thanks to a steep and frequent increase in excise duties and VAT in the last few years. This has bloated the coffers of the state exchequer but denied the benefits of low crude prices to consumers. In this fiscal so far, prices of petrol have gone up by Rs 17.71 per litre or over 25 per cent as excise duties have been hiked by Rs 13 per litre.

Similarly, diesel prices have gone up by Rs 15.19 per litre or 24.4 percent. The excise duty hike on this was Rs 16 per litre. It was partially offset by a Rs 8 per litre cut in VAT by the state government in Delhi on July 31, 2020. Currently, the central government pockets Rs 32.98 per litre that accounts for over 38 percent of the retail selling price of the fuel. On top of this, the state government also gets an additional Rs 19.92 per litre as VAT, which accounts for another 23 percent of the price. The taxes put together account for 61.3 percent of the pump price of petrol, one of the highest in the world.

On diesel, the central government gets Rs 31.83 per litre as excise, accounting for over 41 percent of the selling price and the state government gets Rs 11.22 per litre as VAT representing another 15 percent of the price. Together, taxes account for over 56 percent of the price that consumers have to pay.

The difference can also be seen in the price of the two fuels when crude oil was at similar levels as today. The last time the Indian basket of crude was near the $59.78 per barrel of today was in October 2019 when it was $ 59.70 per barrel. Retail price of petrol then was Rs 72.92 per litre and diesel was at Rs 65.85 per litre.    

It shows up in the fiscal report card for 2020-21. Excise duty revenues registered an over 35 percent jump in 2020-21 at Rs 3,61,000 crore against the budgeted estimate of Rs 2,67,000 crore. For 2021-22, the government has budgeted an excise revenue of Rs 3,35,000 crore, which represents an over 25 percent increase over 2020-21.   

Similarly, it has also bloated the government's exchequer by way of higher collection through the central road and infrastructure fund (CRIF) which is levied as a cess along with excise duty on petrol and diesel. The central government has estimated it would pocket Rs 2,31,132 crore in 2020-21 against its own budgetary estimate of Rs 1,26,076 crore, which represents a 83.3 percent jump. In 2019-20, the government had received Rs 90,252 crore under CRIF. For the next fiscal year 2021-22, the estimate is Rs 2,44,146 crore, 93.6 percent more than the budgetary estimate of 2020-21.

Since 2014, duties on petrol and diesel have been increased 12 times while a reduction has occurred only twice. The current rate of excise duty on petrol and diesel represents an increase of 248 and 794 percent respectively since April 2014. The increase in VAT during the same period is to the tune of 54 percent for petrol and over 184 percent for diesel.

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