Diesel& Petrol Pricing Mechanism in India
Petroleum productsprices always make headlines in India. Whenever a hike in diesel prices isannounced there is nationwide strike by industrial bodies. The reason for this outcry is because of the pricing structure of Petroland Diesel in India.
The petrol and diesel prices which we pay at a Retail Outlet are not its actual cost. Recent headlineswere that the Brent Crude had climbed up to $125 a gallon. A gallon measures159 litres. So (125*50)/159 works out to 39.30 in Rupees. If the retail priceis Rs.66 then thedifferential amount of Rs.26.7 is the tax you pay the Governments at theCentre and State Levels.Thats the reason why you find Petrol and Diesel pricescheaper in a Union Territory like Pondicherry.
Petrol’s PricingStructure:
Fuel Component-52%
Customs Duty – 4%
Excise Duty -25%
Sales VAT -17%
Dealer Commission-2%
Diesel’s pricingStructure:
Fuel Component-66%
Customs Duty – 7%
Excise Duty -13%
Sales VAT -12%
Dealer Commission-2%
Petrol in India has already been deregulated in2010. What this means is that the fuel component in the cost structure of Petrol swings in tandem withthe international prices of crude, while the taxation percentage remainsthe same. So any increase in the prices of Brentcrude is passed on to the customer.
Unlike petrol, diesel cannot be deregulated since95% of its actual usage is in industries while the remaining 5% is used byvehicles as fuel. Any increasein diesel price will inflate the prices of all manufactured goods sincethe cost of production and transportation goes up which leads to undesirablelevels of Inflation.
What areunder-recoveries as quoted by Oil Marketing Companies??
Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum are the OilMarketing Companies (OMC) which import and market oil in India. The price of oil these companies quote in India is the price quoted onthe Singapore Exchange. So the price these companies quote is not theactual cost of oil in India. It is rather the price of oil in Singapore. Makes no sense, does it??
So if the oil price goes up in the Singapore Exchange then thesecompanies quotes the cost of oilproportionately. But since price of diesel is regulated thesecompanies cannot pass on the price hike to the common man. They continue tosell Diesel at a rate determined by the Government. So the loss incurred bythese companies by selling at lower costs is known as under-recoveries. The Government pays thesecompanies on behalf of its citizens in the form of “Subsidies”.
So the Government on the one hand taxesoil in the form of VAT and Excise duty and subsidizes its prices on the other.Yet the government earns more revenue in the form of taxation than losing it inthe form of subsidies year after year. When the Oilprices go up the major beneficiary is the Government because a bigger sum is mopped up by the Government in the form of taxes on oil.
Proponents for a hike in diesel price argue that itwould encourage fuel efficiency. But anyhike in diesel prices would affect the common man the most in the form of inflation.Hence the Government has decided to tax Luxurycars and Air Travel by which the Super Rich get taxed thus saving the CommonMan from any further burden.
UNCIndia¬FIGHT TO RIPOFF THE CORRUPTION!!!
