Why are petrol, diesel rising? Â
Context:
- Diesel and petrol prices have hit record highs across the country, with petrol touching Rs 89 per litre in Delhi, and diesel reaching a new high of Rs 86.30 per litre in Mumbai.
- The government reasons that global crude oil prices have risen by more than 50 per cent to over $63.3 per barrel, forcing oil retailers to increase pump prices.
- Indian consumers are already paying much higher than what they were paying, even though crude prices are yet to reach levels of early last year.
Why are consumers in India paying more for petrol and diesel?
- Retail petrol and diesel prices are in theory decontrolled — or linked to global crude oil prices. Which means that if crude prices fall, as has largely been the trend since February, retails prices should come down too, and vice versa.
- But this does not happen in practice, largely because oil price decontrol is a one-way street in India.
- When global prices go up, the resultant increase is passed on to the consumer, who has to cough up more for every litre of fuel consumed — but when the reverse happens and prices slide, the government, almost by default, slaps fresh taxes and levies to ensure that it rakes in extra revenues, even as the consumer, who should have ideally benefited by way of lower pump prices, is forced to either shell out what she’s already paying, or spend even more for every litre of fuel.
Why are crude oil prices rising now?
- Prices collapsed in April 2020 after the pandemic spread around the world, and demand fell away. But as economies have reduced travel restrictions and factory output has picked up, global demand has improved, and prices have been recovering.
- Brent crude, which was trading at about $40 per barrel between June and October, started rising in November, and has gone past the $60 per barrel mark as the global rollout of Covid-19 vaccines gathers pace.
- The controlled production of crude amid rising demand has been another key factor in boosting oil prices, with Saudi Arabia voluntarily cutting its daily output by 1 million barrels per day to 8.125 million barrels per day through February and March.
What is the impact of taxes on retail prices of auto fuels?
- The central government hiked the central excise duty on petrol to Rs 32.98 per litre during the course of last year from Rs 19.98 per litre at the beginning of 2020, and increased the excise duty on diesel to Rs 31.83 per litre from Rs 15.83 over the same period to boost revenues as economic activity fell due to the pandemic.
- A number of states have also hiked sales tax on petrol and diesel to shore up their revenues.
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