The sharp rise in fuel prices in India in recent months has hit consumers hard. Let us understand why fuel prices are increasing in India?
Gasoline prices surpassed Rs 100 in some states after fuel prices rose again on Sunday. Gasoline prices are rising in Maharashtra, Leh, Rajasthan, Madhya Pradesh, Andhra Pradesh and parts of Telangana.
The sharp rise in fuel prices in recent months has hit consumers hard. This has also had a cascading effect on the price of other goods in the country. Let us understand why fuel prices are increasing in India?
Lack of uniformity in fuel prices
Fuel prices vary from state to state due to differences in local tax structures such as sales tax and freight charges. Rajasthan has the highest VAT on gasoline, followed by Madhya Pradesh and Maharashtra.
The most expensive gasoline in this country is available in the Sri Ganganagar district of Rajasthan, where gasoline is available for 105.52 rupees per liter and diesel for 98.32 rupees per liter. After the price increases, gasoline prices have already passed the Rs 100 mark in several cities in Rajasthan, Madhya Pradesh and Maharashtra. Bhopal was the first state capital in which gasoline hit the three-digit mark, followed by Jaipur and Mumbai.
Factors That Control Fuel Prices In India
So gasoline and diesel are uncontrolled fuels in India, which means that market forces determine their price.
We have kerosene and LPG as controlled fuels, which are also heavily promoted.
India imports almost 80 percent of its gasoline and diesel needs. So it’s not just the demand and supply dynamics of crude oil; It is also the global pricing regime that plays a significant role in prices in India. When global prices rise, the end users bear the brunt. And when global prices go down, governments have the option to levy more taxes, as petroleum taxes are a huge source of income for any government.
Just a tax deduction of Rs 2 can reduce Rs 13,000 crore as revenue for a government.
The excise tax
These taxes, levied by both the central and state governments, are often blamed for the tax increase. For the past three years these taxes have brought the government a total of Rs 14 lakh crore.
A recent change in the way these taxes are calculated has ensured that the central government receives a larger share than the state governments.
The other taxes
Let’s understand pricing. Most of the prices for gasoline and diesel are therefore taxed. It consists of two main components – the excise tax and the VAT.
While the consumption tax goes to the central government, the value added tax goes to the state governments. These taxes make up nearly 60 percent of gasoline prices and 54 percent of diesel prices.
What does the finance commission say?
According to the finance commission, the federal states should receive 41 percent of the consumption tax. However, due to the central government levies, countries often do not get much. So you’re adding VAT on prices and adding an extra state excise tax.
The elimination of excise taxes and GST fees has forced states to resort to rising fuel prices to fund their spending.
The price changes of the oil companies
Despite differing efficiency and cost structure, the three power supplies that dominate the Indian market are seen to charge almost the same prices. Bharat Petroleum, Indian Oil Corporation and Hindustan Petroleum make up this unique cartel that sets the price for India.
Any price change will be carried out from 6 a.m. onwards. These companies review gasoline and diesel prices on a daily basis based on the average price of the reference fuel in the international market over the last 15 days and the exchange rates.
Brent crude – the most widely used international benchmark – is up 36 percent this year to more than $ 70 a barrel. This has caused retail fuel prices to rise.
What does the government have to say?
According to the government, the international market has reduced fuel production and the producing countries are producing much less than before. This increases prices for the consuming countries and the producing countries make unexpected profits.
The government has also mentioned that the increase in fuel prices is due to the increased spending due to Covid-19. The government says it needs to raise more taxes to fund development projects in the country.
Last Updated Jun 7, 2021 12:00 PM IST