India has taken the latest measures to curb rising fuel prices and ensure better availability for consumers. This comes amid global oil market volatility due to the ongoing war between the United States and Iran, which has affected the key sea route — the Strait of Hormuz.
As a result, the government has imposed fresh export duties on diesel and aviation turbine fuel (ATF) while easing domestic excise duties on petrol and diesel. On Friday, Finance Minister Nirmala Sitharaman announced export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on ATF. This move was coupled with lowering excise duties on petrol and diesel for domestic consumption.
The ongoing war has pushed Brent crude, the global benchmark, to nearly a four-year high. According to the experts, this surge in crude prices has contributed to rising costs worldwide. For instance, the US is grappling with a nearly 15-25% rise in prices compared to late February.
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In India, while the government has lowered the duty in its latest move, its benefit may not directly reach the end consumers. This is because retail fuel prices are influenced by many factors such as global crude rates, distribution costs and local taxes.
Main Components Of Petrol, Diesel Prices
Broadly, the per-litre price of petrol in India includes several components. These are the cost of importing and refining crude oil and transporting it to stations, central excise duty, state taxes and dealer commission. The exact amount of each component can vary by city and retailer.
Customers need to note that the changes in any of these may not always affect retail prices as the government decides whether to absorb global oil price increases.
For example, on Friday morning, the government cut the special excise duty by Rs 10 per litre, reducing taxes to Rs 3 per litre for petrol and zero for diesel. Earlier, the central excise duty on petrol was Rs 21.90 per litre, now reduced to Rs 11.90. For diesel, it fell from Rs 17.8 to Rs 7.8 per litre.
This means that if someone paid Rs 2,000 for petrol at a station, where it costs Rs 94.77 a litre (based on price in New Delhi), here is how their amount is factored into per litre.
Breakup Of Central Taxes On A Litre Of Petrol
Basic Excise Duty - Rs 1.4
Special Additional Excise Duty - Rs 3 (reduced from Rs 13)
Agriculture Infrastructure & Development Cess - Rs 2.5
Additional Excise Duty (Road and infrastructure Cess) - Rs 5
Breakup Of Central Taxes On A Litre Of Diesel
Basic Excise Duty - Rs 1.8
Special Additional Excise Duty - 0 (reduced from Rs 10)
Agriculture Infrastructure & Development Cess - Rs 4
Additional Excise Duty (Road and infrastructure Cess) - Rs 2
Why Excise Duty Cuts Did Not Lower Retail Prices?
The central excise on petrol and diesel has been gradually reduced since May 2020. The latest cut, which marked the third since February 2021, did not lower pump prices. This is because the excise duty reduction is aimed at helping oil marketing companies (OMCs), public sector units that import, refine and sell fuel. This move will help them manage rising crude costs caused by the US-Israel conflict in Iran.
Recently, Petroleum Minister Hardeep Singh Puri also explained that OMCs' production costs have “gone through the roof” in the past month, so the excise cut will not directly reduce retail fuel prices.
On Feb. 28, hours before the first US-Israel air strikes hit Iran, it was US$68.13 per barrel. A week later, it was at US$81.38, and on March 7, it crossed the US$100 mark. At US$100 per barrel, it crossed a red line for the global energy industry.
According to Japanese firm Nomura, Indian OMCs faced up to 78.45% higher crude costs, causing estimated Rs 48.8 per litre losses. As a result, the government cut taxes to help prevent fuel price hikes.
Also Read | Excise Duty Cut On Petrol, Diesel May Cost India Up to 0.5% Of GDP, Say Brokerages
How State Duty And Dealer Commission Factor Into Prices?
Additionally, other components of petrol, diesel prices include the state-imposed duties. These can cause prices to differ between the cities. Each state adds sales tax or VAT on top of the base price and central excise, which generates vital revenue for them.
Other components include dealer commission, usually Rs 2.5 to 4.5 per litre, covering owner profit, attendant wages, station maintenance, equipment costs and other costs for the petrol pumps.
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