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In the past few months, retail prices of petrol and diesel have consistently increased to all-time high levels.  On October 16, 2021, the retail price of petrol in Delhi was Rs 105.5 per litre, and that of diesel was Rs 94.2 per litre.  In Mumbai, these prices were even higher at Rs 111.7 per litre and Rs 102.5 per litre, respectively.

The difference in fuel retail prices in the two cities is due to the different tax rates levied by the respective state governments on the same products.  In this blog post, we look at the tax components in the price structure of petrol and diesel, the variation in these across states, and the major changes in taxation of these products in the recent years.  We also discuss changes in the retail prices over the past few years and how it compares vis-à-vis the global crude oil prices.

Taxes make up around 50% of the retail price

Public sector Oil Marketing Companies (OMCs) revise the retail prices of petrol and diesel in India on a daily basis, according to changes in the price of global crude oil.  The price charged to dealers includes the base price set by OMCs and the freight price.   As on October 16, 2021, the price charged to dealers makes up 42% of the retail price in the case of petrol, and 49% of the retail price in the case of diesel (Table 1).

The break-up of retail prices of petrol and diesel in Delhi (as on October 16, 2021), shows that around 54% of the retail price of petrol comprises central and states taxes.  In the case of diesel, this is close to 49%.  The central government taxes the production of petroleum products, while states tax their sale.  The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel.  These make up 31% and 34% of the current retail prices of petrol and diesel, respectively.

Table 1: Break-up of petrol and diesel retail prices in Delhi (as on October 16, 2021)

Component

Petrol

Diesel

Rs/litre

% of retail price

Rs/litre

% of retail price

Price Charged to Dealers

44.4

42%

46.0

49%

Excise Duty (levied by centre)

32.9

31%

31.8

34%

Dealer Commission (average)

3.9

4%

2.6

3%

Sales Tax/ VAT (levied by state)

24.3

23%

13.8

15%

Retail Price

105.5

100%

94.2

100%

Note: Delhi levies 30% VAT on petrol and 16.75% VAT on diesel. 
Sources: Indian Oil Corporation Limited; PRS.

While excise duty rates are uniform across the country, states levy sales tax/ Value Added Tax (VAT) which varies across states.  For instance, Odisha levies 32% VAT on petrol, while Uttar Pradesh levies 26.8% VAT or Rs 18.74 per litre, whichever is higher.   Refer to the table 3 in annexure for sales taxes/VAT levied across the country.  The figure below shows the different tax rates levied by states on petrol and diesel.  In addition to the tax rates shown in the graph, many state governments, such as Tamil Nadu, also levy certain additional levies such as cess (Rs 11.5 per litre).

Figure 1: Sales tax/VAT rates levied by states on petrol and diesel (as on October 1, 2021)

image

Note: The rates shown for Maharashtra are averages of the rates levied in the Mumbai-Thane region and in the rest of the state. Only percentages are being shown in this graph. 
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product.  This implies that while the value of excise duty component of the price structure is fixed, the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.

Retail prices in India compared to global crude oil price

India’s dependence on imports for consumption of petroleum products has increased over the years.  For instance, in 1998-99, net imports of petroleum products were 69% of the total consumption, which increased to around 95% in 2020-21.  Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products.  The two figures below show the trend in the price of global crude oil and retail prices of petrol and diesel in India, over the last nine years.

Figure 2: Trend of the global crude oil price vis-à-vis retail prices of petrol and diesel (in Delhi)

image

image

Note: Global Crude Oil Price is for the Indian basket.   Petrol and diesel retail prices are for Delhi.  Figures reflect average monthly price.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Between June 2014 and October 2018, the retail selling prices did not adhere to change in global crude oil prices.  The global prices fell sharply between June 2014 and January 2016, and then subsequently increased between February 2016 and October 2018.  However, the retail selling prices remained stable during the entire period.  This disparity in the change in global and Indian retail prices was because of the subsequent changes in taxes.  For instance, central taxes were increased by Rs 11 and 13 between June 2014 and January 2016 on petrol and diesel respectively.  Subsequently, taxes were decreased by four rupees between February 2016 and October 2018 for petrol and diesel.  Similarly, during January-April 2020, following a sharp decline of 69% in the global crude oil prices, the central government increased the excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre, respectively in May 2020. 

Sharp increase in excise duty collections

As a result of the increase in excise duty in May 2020, the excise duty collection increased sharply from Rs 2.38 lakh crore in 2019-20 to Rs 3.84 lakh crore in 2020-21.  The year-on-year growth rate of excise duty collection increased from 4% in 2019-20 to 67% in 2020-21.  However, sales tax collections (from petroleum products) during that period remained more or less constant (Figure 3).  

Figure 3: Excise duty and sales tax/ VAT collection from petroleum products (in Rs lakh crore) 

image

Note: The excise duty component in the figure includes cess on crude oil.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Share of states in excise duty has decreased over the years

Though central taxes (such as excise duty) are levied by the centre, it has only 59% of the revenue from these taxes.  The remaining 41% of the revenue is required to be devolved to the state governments as per the recommendations of the 15th Finance Commission.  These devolved taxes are un-tied in nature, states can spend them according to their own discretion.  The excise duty levied on petrol and diesel consists of two broad components: (i) tax component (i.e., basic excise duty), and (ii) cess and surcharge component.  Of this, only the revenue generated from the tax component is devolved to states.  Revenue generated by the centre from any cess or surcharge is not devolved to states.  Currently, the Agriculture Infrastructure and Development Cess, and the Road and Infrastructure Cess are levied on the sale of petrol and diesel in addition to the surcharge.  

In the Union Budget 2021-22, the Agriculture Infrastructure and Development cess on petrol and diesel was announced at Rs 2.5 per litre and Rs 4 per litre, respectively.  However, simultaneously, the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same.  Essentially, this provision shifted a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which is entirely with the centre.  Similarly, over the last four years, the share of tax component in the excise duty has decreased by 40% in petrol and 59% in diesel (table 2).  At present, majority of the excise duty levied on petrol (96%) and diesel (94%) is in the form of cess and surcharge, due to which it is entirely under the centre’s share (Table 2).  

Table 2: Break up of excise duty (Rs per litre)

Excise duty

Petrol

Diesel

Apr-17

% share of total

Feb-21

% share

Apr-17

% share of total

Feb-21

% share

Tax (devolved to states)

9.48

44%

1.4

4%

11.33

65%

1.8

6%

Cess and surcharge (centre)

12

56%

31.5

96%

6

35%

30

94%

Total

21.48

100%

32.9

100%

17.33

100%

31.8

100%

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS

As a result, the devolution to states out of the excise duty has declined over the last four years.   Even though the excise duty collections have increased sharply between 2019-20 and 2020-21, the devolved component has declined from Rs 26,464 to Rs 19,578 (revised estimate) in the same period.    

Annexure

Table 3: Sales taxes/VAT rates levied on petrol and diesel across states (as on October 1, 2021)

State/UT

Petrol

Diesel

Andaman & Nicobar Islands

6%

6%

Andhra Pradesh

31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an

d Vat thereon

22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon

Arunachal Pradesh

20%

13%

Assam

32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre

23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre

Bihar

26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)

19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)

Chandigarh

Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher

Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher

Chhattisgarh

25% VAT + Rs.2/litre VAT

25% VAT + Rs.1/litre VAT

Dadra and Nagar Haveli and Daman and Diu

20% VAT

20% VAT

Delhi

30% VAT

Rs.250/KL air ambience charges + 16.75% VAT

Goa

27% VAT + 0.5% Green cess

23% VAT + 0.5% Green cess

Gujarat

20.1% VAT+ 4% Cess on Town Rate & VAT

20.2% VAT + 4 % Cess on Town Rate & VAT

Haryana

25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT

16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT

Himachal Pradesh

25% or Rs 15.50/Litre- whichever is higher

14% or Rs 9.00/Litre- whichever is higher

Jammu & Kashmir

24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre

16% MST+ Rs.1.50/Litre employment cess 

Jharkhand

22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr

22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr

Karnataka

35% sales tax

24% sales tax

Kerala

30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess 

22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess 

Ladakh

24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre

16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre

Lakshadweep

Nil

Nil

Madhya Pradesh

33 % VAT + Rs.4.5/litre VAT+1%Cess

23% VAT+ Rs.3/litre VAT+1% Cess

Maharashtra – Mumbai, Thane , Navi Mumbai,  Amravati & Aurangabad

26% VAT+ Rs.10.12/Litre additional tax 

24% VAT+ Rs.3.00/Litre additional tax 

Maharashtra (Rest of State)

25% VAT+ Rs.10.12/Litre additional tax 

21% VAT+ Rs.3.00/Litre additional tax 

Manipur

32% VAT

18% VAT

Meghalaya

20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) 

12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) 

Mizoram

25% VAT

14.5% VAT

Nagaland

25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess 

16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess 

Odisha

32% VAT

28% VAT

Puducherry

23% VAT

17.75% VAT

Punjab

Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT

Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT

Rajasthan

36% VAT+Rs 1500/KL road development cess

26% VAT+ Rs.1750/KL road development cess

Sikkim

25.25% VAT+ Rs.3000/KL cess 

14.75% VAT + Rs.2500/KL cess 

Tamil Nadu

13% + Rs.11.52 per litre

11%  + Rs.9.62 per litre

Telangana

35.20% VAT

27% VAT

Tripura

25% VAT+ 3% Tripura Road Development Cess

16.50% VAT+ 3% Tripura Road Development Cess

Uttar Pradesh

26.80% or Rs 18.74/Litre whichever is higher

17.48% or Rs 10.41/Litre whichever is higher

Uttarakhand

25% or Rs 19 Per Ltr whichever is greater

17.48% or Rs Rs 10.41 Per Ltr whichever is greater

West Bengal

25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS. 

India has been in lockdown since March 25, 2020.  During this time, activities not contributing to the production and supply of essential goods and services were completely or partially suspended.  Passenger trains and flights were halted.  The lockdown has severely impacted migrants, several of whom lost their jobs due to shutting of industries and were stranded outside their native places wanting to get back.  Since then, the government has announced relief measures for migrants, and made arrangements for migrants to return to their native place.  The Supreme Court of India, recognising the problems faced by migrants stranded in different parts of the country, reviewed transportation and relief arrangements made by the government.  On June 9, the Court directed central and state governments to complete transportation of remaining stranded migrants and expand focus of relief measures to facilitate employment for returning migrants.  In this blog, we highlight some facts about migration in India, summarise key relief measures announced by the government and directives issued by the Supreme Court for the migrant population in relation to the lockdown.

Overview of Migration

Migration is the movement of people away from their usual place of residence, across either internal (within country) or international (across countries) borders.  The latest government data on migration comes from the 2011 Census.  As per the Census, India had 45.6 crore migrants in 2011 (38% of the population) compared to 31.5 crore migrants in 2001 (31% of the population).   Between 2001 and 2011, while population grew by 18%, the number of migrants increased by 45%.  In 2011, 99% of total migration was internal and immigrants (international migrants) comprised 1%.[1] 

Patterns of migration

Internal migrant flows can be classified on the basis of origin and destination.  One kind of classification is: i) rural-rural, ii) rural-urban, iii) urban-rural and iv) urban-urban.  As per the 2011 census, there were 21 crore rural-rural migrants which formed 54% of classifiable internal migration (the Census did not classify 5.3 crore people as originating from either rural or urban areas).  Rural-urban and urban-urban movement accounted for around 8 crore migrants each.   There were around 3 crore urban-rural migrants (7% of classifiable internal migration).

Another way to classify migration is: (i) intra-state, and (ii) inter-state.  In 2011, intra-state movement accounted for almost 88% of all internal migration (39.6 crore persons).1 

There is variation across states in terms of inter-state migration flows.  According to the 2011 Census, there were 5.4 crore inter-state migrants.  As of 2011, Uttar Pradesh and Bihar were the largest source of inter-state migrants while Maharashtra and Delhi were the largest receiver states.  Around 83 lakh residents of Uttar Pradesh and 63 lakh residents of Bihar had moved either temporarily or permanently to other states.  Around 60 lakh people from across India had migrated to Maharashtra by 2011. 

Figure 1: Inter-state Migration (in lakh)

image 

Note: A net out-migrant state is one where more people migrate out of the state than those that migrate into the state.  Net in-migration is the excess of incoming migrants over out-going migrants.   

Sources: Census 2011; PRS.

Reasons for internal migration and size of migrant labour force

As of 2011, majority (70%) of intra-state migration was due to reasons of marriage and family with variation between male and female migrants.  While 83% of females moved for marriage and family, the corresponding figure for males was 39%.  Overall, 8% of people moved within a state for work (21% of male migrants and 2% of female migrants). 

Movement for work was higher among inter-state migrants- 50% of male and 5% of female inter-state migrants.  As per the Census, there were 4.5 crore migrant workers in 2011.  However, according to the Working Group Report on Migration, the Census underestimates the migrant worker population.   Female migration is recorded as movement due to family since that is the primary reason.  However, many women take up employment after migrating which is not reflected in the number of women moving for work-related reasons. [2]  

According to the Economic Survey, 2016-17, Census data also underestimates temporary migrant labour movement.  In 2007-08, the NSSO estimated the size of India’s migrant labour at seven crore (29% of the workforce).  The Economic Survey, 2016-17, estimated six crore inter-state labour migrants between 2001-2011.  The Economic Survey also estimated that in each year between 2011-2016, on average 90 lakh people travelled for work. 

Figure 2: Reasons for intra-state migration 

image

Sources: Census 2011; PRS.

Figure 3:Reasons for inter-state migration 

Sources: Census 2011; PRS.

Issues faced by migrant labour

Article 19(1)(e) of the Constitution, guarantees all Indian citizens the right to reside and settle in any part of the territory of India, subject to reasonable restrictions in the interest of the general public or protection of any scheduled tribe.  However, people migrating for work face key challenges including: i) lack of social security and health benefits and poor implementation of minimum safety standards law, ii) lack of portability of state-provided benefits especially food provided through the public distribution system (PDS) and iii) lack of access to affordable housing and basic amenities in urban areas. 2    

Poor implementation of protections under the Inter-State Migrant Workmen Act, 1979 (ISMW Act) 

The ISMW Act provides certain protections for inter-state migrant workers.  Labour contractors recruiting migrants are required to: (i) be licensed, (ii) register migrant workers with the government authorities, and (iii) arrange for the worker to be issued a passbook recording their identity.  Guidelines regarding wages and protections (including accommodation, free medical facilities, protective clothing) to be provided by the contractor are also outlined in the law. 

In December 2011, a report by the Standing Committee on Labour observed that registration of workers under the ISMW Act was low and implementation of protections outlined in the Act was poor.   The report concluded that the Central government had not made any concrete and fruitful efforts to ensure that contractors and employers mandatorily register the workers employed with them enabling access to benefits under the Act.  

Lack of portability of benefits

Migrants registered to claim access to benefits at one location lose access upon migration to a different location.  This is especially true of access to entitlements under the PDS.  Ration card required to access benefits under the PDS is issued by state governments and is not portable across states.  This system excludes inter-state migrants from the PDS unless they surrender their card from the home state and get a new one from the host state.  

Lack of affordable housing and basic amenities in urban areas

The proportion of migrants in urban population is 47%.1  In 2015, the Ministry of Housing and Urban Affairs identified migrants in urban areas as the largest population needing housing in cities.  There is inadequate supply of low-income ownership and rental housing options.  This leads to the spread of informal settlements and slums.  The Prime Minister Awaas Yojana (PMAY) is a central government scheme to help the economically weaker section and low-income group access housing.  Assistance under the scheme includes:  i) slum rehabilitation, ii) subsidised credit for home loans, iii) subsidies up to Rs 1.5 lakh to either construct a new house or enhance existing houses on their own and iv) increasing availability of affordable housing units in partnership with the private sector.  Since housing is a state subject, there is variation in approach of States towards affordable housing.2 

Steps taken by the government with regard to migrant labour during the lockdown

During the lockdown, several inter-state migrant workers tried to return to their home state. Due to the suspension public transport facilities, migrants started walking towards their home state on foot.  Subsequently, buses and Shramik special trains were permitted by the central government subject to coordination between states.[3],[4]  Between May 1 and June 3, more than 58 lakh migrants were transported through specially operated trains and 41 lakh were transported by road.  Measures taken by the government to aid migrants include-

Transport:  On March 28, the central government authorised states to use the State Disaster Response Fund to provide accommodation to traveling migrants.  States were advised to set up relief camps along highways with medical facilities to ensure people stay in these camps while the lockdown is in place.  

In an order issued on April 29, the Ministry of Home Affairs allowed states to co-ordinate individually to transport migrants using buses.  On May 1, the Indian Railways resumed passenger movement (for the first time since March 22) with Shramik Special trains to facilitate movement of migrants stranded outside their home state.  Between May 1 and June 3, Indian Railways operated 4,197 Shramik trains transporting more than 58 lakh migrants.  Top states from where Shramik trains originated are Gujarat and Maharashtra and states where the trains terminated are Uttar Pradesh and Bihar.[5]  Note that these trends largely correspond to the migration patterns seen in the 2011 census data.  

Food distribution:  On April 1, the Ministry of Health and Family Affairs directed state governments to operate relief camps for migrant workers with arrangements for food, sanitation and medical services.  On May 14, under the second tranche of the Aatma Nirbhar Bharat Abhiyaan, the Finance Minister announced that free food grains would be provided to migrant workers who do not have a ration card for two months.  The measure is expected to benefit eight crore migrant workers and their families.   The Finance Minister also announced that One Nation One Ration card will be implemented by March 2021, to provide portable benefits under the PDS.  This will allow access to ration from any Fair Price Shop in India.  

Housing:  The Aatma Nirbhar Bharat Abhiyaan also launched a scheme for Affordable Rental Housing Complexes for Migrant Workers and Urban Poor to provide affordable rental housing units under PMAY.  The scheme proposes to use existing housing stock under the Jawaharlal Nehru National Urban Housing Mission (JnNURM) as well as incentivise public and private agencies to construct new affordable units for rent.  Further, additional funds have been allocated for the credit linked subsidy scheme under PMAY for middle income group. 

Financial aid:  Some state governments (like BiharRajasthan and Madhya Pradesh) announced one-time cash transfers for returning migrant workers.  UP government announced the provision of maintenance allowance of Rs 1,000 for returning migrants who are required to quarantine. 

Directions by the Supreme Court

The Supreme Court reviewed the situation of migrant labourers stranded in different parts of the country, noting inadequacies and lapses in government response to the situation.  

  • On May 26, the Court issued an order to the central and state governments to submit a response detailing all measures taken by the respective governments for migrant labourers.  
  • On May 28, the Court provided interim directions to the central and state/UT governments for ensuring relief to the migrant workers: i) no train or bus fare should be charged to migrant workers, ii) free food should be provided to stranded migrants by the concerned State/UT government and this information should be publicised, iii) States should simplify and speed-up the process of registration of migrants for transport and those registered should be provided transportation at the earliest and iv) the state receiving migrants should provide last-mile transport, health screening and other facilities free of cost. 
  • Reiterating their earlier directions, on June 5 (full order issued on June 9), the Supreme Court further directed the Central and state/UT governments to ensure: i) transportation of all stranded workers wanting to return to their native place is completed within 15 days, ii) identification of migrant workers is immediately completed and the process of migrant registration be decentralised to police stations and local authorities, iii) records of returning migrant labourers are kept including details about place of earlier employment and nature of their skills, and iv) counselling centres are set-up at the block level to provide information about central and state government schemes and other avenues of employment.  The Court also directed the state/UT governments to consider withdrawal of prosecution/complaints under Section 51 of Disaster Management Act filed against migrant labourers who allegedly violated lockdown orders. 

 

[1] Census, 2011, Office of the Registrar General & Census Commissioner, Ministry of Home Affairs.

[2] Report of Working Group on Migration, Ministry of Housing and Urban Poverty Alleviation, January 2017, http://mohua.gov.in/upload/uploadfiles/files/1566.pdf.

[3] Order No. 40-3/2020-DM-I (A), Ministry of Home Affairs, April 29, 2020, https://prsindia.org/files/covid19/notifications/4233.IND_Movement_of_Persons_April_29.pdf

[4] Order No. 40-3/2020-DM-I (A), Ministry of Home Affairs, May 1, 2020, https://prsindia.org/files/covid19/notifications/IND_Special_Trains_May_1.jpeg

[5] “Indian Railways operationalizes 4197 “Shramik Special” trains till 3rd June, 2020 (0900hrs) across the country and transports more than 58 lacs passengers to their home states through “Shramik Special” trains since May 1”, Press Information Bureau, Ministry of Railways, June 3, 2020, https://pib.gov.in/PressReleseDetail.aspx?PRID=1629043