FALLING CRUDE, RISING FUEL PRICES

about 2 months ago
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Today, on the bourses, Oil Marketing Companies (OMCs) – HPCL and BPCL are among the top five gainers on the BSE currently. IOC is also up in the green. These companies obviously benefit when crude price drops as they are the one’s who import it and then market it to us. So any fall/rise in price of crude impacts them immediately.

So why is crude price down?

  • Brent crude remained stable and low at $57.73/barrel – it has been falling for seven consecutive days – the longest losing streak since a year.
  • US announced that its inventories swelled by a more-than-expected 3.1 million barrels last week.
  • US economic data came in to suggest that demand has tapered off and there is a sense of pessimism.
  • The ongoing blow hot-blow cold trade war between US and China is pushing the global economy towards further slowdown.
  • Saudi Arabia’s increased pumping after the fire and speedy recovery in supply plus some signs of tensions easing in the Persian Gulf has pulled down the prices.

So many reasons for the crude price to fall globally but none of it matters to us, we the people, as we continue to pay higher and higher fuel prices.

On Monday and Tuesday, the days when crude oil slipped $60, fuel prices in India rose to a peak. In Delhi, petrol rates surged to Rs 74.61 a litre, the highest since November 25 last year. Diesel was selling at Rs 67.47 a litre in the national capital. In Mumbai, petrol crossed the Rs.80 mark.

Since the drone attack in Saudi, fuel prices in India have been hiked consistently though Saudi has restored operations and supply is normalized. The price of petrol has increased by Rs 2.36 per litre while that of diesel by Rs 1.98 per litre since September 17 in Mumbai.

Fuel prices are revised on a daily basis; so how come when crude drops, our prices get hiked instead of coming down?

Blame it on the Govt, mainly the state governments.  The prices at which a dealer gets petrol and diesel are much lower and the difference is largely due to the excise tax imposed by the central government and the value added tax (VAT) imposed by the state governments. And therein lay the crux of the problem – the fat taxes by the Govts is what never allows us to enjoy the crude price fall much. Taxes increase the sale price of petrol by more than 90% over the dealer price including commission and that of diesel by more than 60 %.

Over the past four - five years, fuel prices in India have only been going up steadily and this is on account of the constant hike in excise duty by the Govt. Excise duty has been hiked not once or twice but 12 times in the past four years! 

The Modi govt gets Rs.10/litre more than the UPA govt on petrol and gets Rs.11/litre more on diesel. To put this in perspective, excise duty on petrol rose over 105% and that on diesel rose over 240%.

More than the falling rupee, which also directly impacts the fuel price, it is this taxation that has burdened us today. This sounds so familiar – exactly why we pay so much for our airline tickets.

The fuel tax is a percentage of the selling price and that means as prices go up, Govt earns more. And along with the Govt, others who make merry with the rising petrol/diesel price are the petrol pump owners or dealer too. Point to note here – central excise duty is fixed but VAT changes in each State.

The petrol/diesel price breakup consists of four parts –

1: Dealer commission (Rs.3.63/litre) – this is what OMCs pay to petrol pump dealers

2: State tax which is VAT (Rs.39.12/litre)

3: Central tax which is excise duty (Rs.19.48/litre)

4: Price of petrol to dealer or pump owner (24.49/litre) – the price which OMCs charges its dealers.

Currently, the Centre currently levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, States levy Value Added Tax (VAT) which varies state-to-state.  Mumbai levies the highest VAT of 39.12% on petrol and VAT on diesel is highest in Telangana at 26%.

And if we take a sum total of the tax on petrol, it comes at a staggering 45-50% while that for diesel stands at 35-40%. Now one understands why GST on fuel never got levied – the highest slab in GST is at 28% and currently the Govt is earning more than double; so why will they suffer a loss because we are suffering? If prices were bought under GST, at the highest 28% slab, cost of petrol would be Rs.48.59. Almost half of what we pay today.

So let us not blame the depreciating rupee and rising crude prices. It is politics and politics only which is making life so miserable for us Indians. Understand the math and realise that we are paying every single day through GST, fuel taxes, surcharges for all that which the Govt spends.

The sad truth is that petrol and diesel are the biggest cash cow for both State as well as Central Govt. Ironically, neither the State nor the Center is able to generate enough money through investments and taxing has become the only way to feed the vote banks while following the subsidy policies. Not to mention the hefty dividends it gets from the oil companies! And you thought the Govt cares about us?

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