Rewind to July 2011, a year when crude prices soared to $113 in the international market and yet you were only paying Rs 68/litre at the petrol pump so as we fast forward a decade to 2021 and look at the pump price of Rs 108 in Mumbai when the global crude headline reads on $75/bbl. The first and possibly the only question that remains is-:
Why is my petrol bill so high?
The price you pay at the petrol pump depends on 4 things and not just the price of oil in the global markets. The final cost of fuel depends on
- Global crude prices
- Exchange rate, the value of the rupee
- Excise duty charged by the government.
- Value Added Tax levied by the state government.
So who is to blame right now? We evaluate all four ‘villains’ as the blame game begins!
Candidate #1: Crude prices
Global crude prices have seen erratic moves almost, mirroring major tantrums by a spoilt child. From the lows of $11 to the highs of $76 the range of the price moves has been dizzying. But at $76 it is still way below the over $100 mark record high so it still leaves one puzzled on the price at the pump. In fact even at $11 a bbl we were still paying Rs 75 for a litre at the petrol pump. So well it becomes obvious that the petrol price blame game has to shift away from the global crude prices that have been nowhere close to record high unlike domestic fuel prices.
Candidate #2: Rupee value vs dollar
The focus then shifts to the currency, as it import over 80% of crude needs if the value of the rupee keeps falling we would pay more rupees for every dollar we were spending on oil even if the price of crude stayed the same. This has been a silent villain for the petrol bill for the govt who paid Rs 44 per dollar a decade ago when crude was the same price vs now when the rupee stands at Rs 75 per dollar.
So India spends close to $90 billion a year importing oil; in 2011 that cost the exchequer (at the rate of Rs 44/$) Rs 3.76 lakh crore.
If the import quantity stays the same the equal, the same bill of $90 billion now means the payout balloons to Rs 6.79 lakh crore merely coz each rupee now fetches you a much lower amount of dollars.
Candidate #3: Taxes, states & centre
If one asks for a detailed bill from the petrol or just checks the website of India’s largest fuel retailer Indian Oil Corporation you would see the maximum pressure on the bill is below the cost of fuel and actually rests with the taxes, by the state and central government. Nearly 60% of your bill merely taxes, so the cost of petrol is about RS 40/litre and the rest Rs 60 is merely taxes and duties.
Culprit #1 Excise Duty: The excise duty collected by the government has risen sharply in the last year in May last year, the central excise duty on petrol was increased from Rs 22.98 per litre to Rs 32.98 per litre. Despite much lower demand for fuel in the pandemic the governments’ excise duty kitty, collected mostly from petrol and diesel, jumped almost 63% to Rs 3.89 lakh crore in the last financial year which has given the purse holders for the government great relief but has had the opposite reaction for consumers.
Culprit #2: Value Added Tax(VAT): Levied by the state governments this differs from state to state. For example in Delhi is around 23% adding onto the excise duty already imposed by the state. The collection of VATor rates have largely been stable over the last 10 years but adds significantly to the petrol bill.
So what next? Will my petrol bill never reduce again?
With a hike in prices, almost every alternate day from the start of May any significant reduction seems unlikely except the double trouble villain of tax is tackled. The only plausible solution to reduce the b’oil’ing burden of tax is to bring petrol, diesel under GST, which has support not just from the Finance Ministry but also from the Central banker. The RBI worried about inflation impact has repeatedly signalled the need for a uniform tax on petrol. This would be the only way to remove the 60% tax hit on the petrol bill.
Why the delay in inclusion for petrol in GST?
Simply speaking the states don’t want to kill the chicken that lays the golden egg. Petroleum products contribute a significant amount of revenue to the states. For instance, VAT on petroleum products is as high as 40% in Maharashtra, adding over Rs 25,000 crore per year. Bringing petroleum under GST takes away that control as the Centre is the one in charge of fixing the rate of GST.
