Mumbai: State-owned oil marketing companies (OMCs) have hiked retail prices of petrol and diesel by Rs 6.17 and Rs 3.69 a litre respectively since July 1, 2017, as part of their new mechanism of daily price revisions.

Petrol and diesel were selling at Rs 69.26 and Rs 57.13 a litre last Friday, prices much higher than what prevailed on the same day in southeast asian nations such as Malaysia and Indonesia and neighbouring countries like Pakistan, Nepal, Sri Lanka, Bhutan.

The difference between the petrol and diesel prices of India and Malaysia is mind boggling. Petrol price of Rs 32.19 a litre in Malaysia was less than half what prevailed in India last Friday. The diesel price in the Southeast Asian country at Rs 31.59 a litre was 44% lower compared to India.

On the same day, petrol and diesel were available in Indonesia at prices that were 41% and 24% lower compared to India.

The difference in auto fuel prices in India and countries within the subcontinent is also no less surprising.

For example, on the same day petrol was available at Rs 42.14 a litre at fuel retail outlets in Pakistan, a price that is nearly 40% lower compared to India. Similarly, diesel was cheaper by 17% there.

Retail prices in India and select countries as on September 1, 2017 (Rs/litre)

Country Petrol Diesel India 69.26 57.13 Pakistan 42.14 46.93 Sri Lanka 53.47 39.69 Nepal 61.24 46.24 Bhutan 62.21 56.05 Bangladesh 69.91 51.05 Malaysia 32.19 31.59 Indonesia 40.58 43.36

Source: PPAC, petroleum ministries of concerned countries, Delhi’s prices have been taken for reference in this story

Petrol and diesel were selling at Rs 53.47 and Rs 39.69 a litre in Sri Lanka, nearly 23% and 30% lower compared to India.

In Nepal, retail prices of petrol and diesel were 12% and 19% lower than prevailing rates of auto fuels in India on the same day. In Bhutan, the selling price of petrol was nearly 10% lower compared to India, though difference in diesel price was less pronounced at 1%.

While the retail price of petrol in Bangladesh was nearly at the same level as in India on that day, diesel price was 10% lower.

Monthly movement in Indian crude basket price in 2017-18

Month Price ($/bbl) April 52.49 May 50.57 June 46.56 July 47.86

Source: PPAC

The high prices of fuel in India are confusing, especially when considering international crude oil prices are currently ruling at less than half their 2012-13 and 2013-14 levels.

Petrol and diesel prices ruled at Rs 68.31-73.16 and Rs 48.63-55.48 a litre respectively in 2013-14 when the price of Indian crude basket averaged at the staggeringly high level of $105.52 a barrel (bbl).

However, retail fuel prices still remain at the same level, though the price of Indian crude basket has fallen to below $47.86/bbl since then.

Taxes, the main culprit

However, the reason for India’s high fuel prices is quite clear. Taxes constitute 45%-52% of the retail price of auto fuels, far higher than what would be the incidence if petrol and diesel are brought under introduced Goods and Services Tax (GST) and the highest tax rate of 28% is levied.

International oil prices started their descent in July 2014. The Narendra Modi government, which assumed office in the last week of May that year, took advantage of the crash in oil prices to boost its revenue and bridge fiscal deficit instead of passing on the benefits to consumers as the logic of market-determined pricing would dictate.

The NDA government hiked excise duty on auto fuels by nine times in 2014-15 and 2015-16. Excise duty on petrol and diesel was Rs 9.48 and Rs 3.56 a litre respectively before the NDA government took office. However, through repeated hikes, it has jacked up duty to Rs 21.48 and Rs 17.33 a litre, an increase of 226% and 486% respectively over the May 2014 level.

Price build-up of petrol as on September 2, 2017

Head Amount (Rs/litre) Price paid by OMCs to refineries 26.65 Price charged to dealers( excluding excise duty and VAT) 29.96 Excise duty 21.48 Dealers commission 3.24 VAT@27 (including VAT on dealer commission) 14.76 Retail price 69.43

Source: IOC

As per data shared by Indian Oil Corporation, it paid Rs 26.65 to refineries for a litre of the fuel, which it then sold on to dealers at Rs 29.96 a litre. Excise duty of Rs 21.48, Rs 3.24 dealer commission and Rs 14.76 per litre of VAT, applicable at 27%, were added to this to arrive at the final price Rs 69.43 a litre on Saturday (September 2) in Delhi.

Similarly, it paid Rs 26 a litre for purchase of diesel from refineries, which it them sold on to dealers for Rs 29.25 a litre. Excise duty of Rs 17.33, dealer commission of Rs 2.17 and VAT and pollution cess of Rs 8.46 (applicable at 16% and Rs 0.25 a litre respectively) were added to this to work out the retail price of Rs 57.21 a litre on the same day in the national capital.

Price build-up of diesel as on September 2, 2017

Head Amount (Rs/litre) Price paid by OMCs to refineries 26 Price charged to dealers (excluding excise duty and VAT) 29.25 Excise duty 17.33 Dealer commission 2.17 VAT@16.75% (including VAT on dealer commission) + pollution cess of Rs 0.25/litre 8.46 Retail price 57.21

Source: IOC

The UPA government had decontrolled petrol prices in June 2010. Diesel pricing was deregulated by the NDA government in October 2014.

The economic logic was that market forces should determine fuel prices and not the government. But the NDA government has taken away benefits of low oil prices from consumers, acting against the very logic propounded for the deregulation of the retail auto fuel market.