What impacts petroleum prices?

Vatsal Khullar - April 25, 2018

Over the last few days, the retail prices of petrol and diesel have touched an all-time high. In Delhi, petrol was selling at 74.6/litre on April 25, 2018, while diesel was at 66/litre.

Petroleum products are used as raw materials in various sectors and industries such as transport and petrochemicals. These products may also be used in factories to operate machinery or generators. Any fluctuation in the price of petrol and diesel impacts the production and transport costs of various items. When compared to other neighbouring countries, India has the highest prices for petrol and diesel.

Note: Prices as on April 1, 2018. Prices for India pertain to Delhi. Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Note: Prices as on April 1, 2018. Prices for India pertain to Delhi.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

How is the price of petrol and diesel fixed?

Historically, the price of petrol and diesel in India was regulated, i.e. the government was involved in the deciding the retail price. The government deregulated the pricing of petrol in 2010 and diesel in 2014. This allowed oil marketing companies to determine the price of these products, and revise them every fortnight.

Starting June 16, 2017, prices for petrol and diesel are revised on a daily basis. This was done to with the idea that daily revision will reduce the volatility in retail prices, and protect the consumer against sharp fluctuations. The break-up of retail prices of petrol and diesel in Delhi on April 25, 2018 can be found below. As seen in the table, over 50% of the retail price of petrol comprises central and states taxes and the dealer’s commission. In case of diesel, this amount is close to 40%.

Table 1: Break-up of petrol and diesel prices in Delhi (on April 25, 2018)

Component	Petrol		Diesel
Component	Rs/litre	% of retail price	Rs/litre	% of retail price
Price Charged to Dealers	35.7	48%	38.4	58%
Excise Duty (levied by centre)	19.5	26%	15.3	23%
Dealer Commission	3.6	5%	2.5	4%
VAT (levied by state)	15.9	21%	9.7	15%
Retail Price	74.6	100%	65.9	100%

Source: Price Build-up of Petrol and Diesel at Delhi effective April 25, 2018; Indian Oil Corporation Limited.

Does India produce enough petroleum to support domestic consumption?

India imports 84% of the petroleum products consumed in the country. This implies that any change in the global prices of crude oil has a significant impact on the domestic price of petroleum products. In 2000-01, net import of petroleum products constituted 75% of the total consumption in the country. This increased to 95% in 2016-17. The figure below shows the amount of petroleum products consumed in the country, and the share of imports.

Note: Production is the difference between the total consumption in the country and the net imports. Sources: Petroleum Planning and Analysis Cell; PRS.

Note: Production is the difference between the total consumption in the country and the net imports.
Sources: Petroleum Planning and Analysis Cell; PRS.

What has been the global trend in crude oil prices? How has this impacted prices in India?

Over the last five years, the global price of crude oil (Indian basket) has come down from USD 110 in January 2013 to USD 64 in March 2018, having touched a low of USD 28 in January 2016.

While there has been a 42% drop in the price of global crude over this five-period, the retail price of petrol in India has increased by 8%. During this period, the retail price of diesel increased by 33%. The two figures below show the trend in prices of global crude oil and retail price of petrol and diesel in India, over the last five years.

Note: Subsidy indicated in the graphs is notional. While calculating the subsidy amount, other factors such as cost of domestic inputs will also have to be accounted. Global Crude Oil Price is for the Indian basket. Figures reflect average monthly retail price of petrol and diesel in Delhi.
Sources: Petroleum Planning and Analysis Cell; Indian Oil Corporation Limited; PRS.

How has the excise duty on petrol and diesel changed over the last few years?

Under the Constitution, the central government has the powers to tax the production of petroleum products, while states have the power to tax their sale. Petroleum has been kept outside the purview of the Goods and Services Tax (GST), till the GST Council decides.

Over the years, the central government has used taxes to prevent sharp fluctuations in the retail price of diesel and petrol. In the past, when global crude oil prices have increased, duties have been cut. Since 2014, as global crude oil prices declined, excise duties have been increased.

Sources: Petroleum Planning and Analysis Cell; PRS.

As a consequence of the increase in duties, the central government’s revenue from excise on petrol and diesel increased annually at a rate of 46% between 2013-14 and 2016-17. During the same period, the total sales tax collections of states (from petrol and diesel) increased annually by 9%. The figure below shows the trend in overall collections of the central and state governments from petroleum (including receipts from taxes, royalties, and dividends).

Notes: Data includes tax collections (from cesses, royalties, customs duty, central excise duty, state sales tax, octroi, and entry tax, among others), dividends paid to the government, and profit on oil exploration. Data sources: Petroleum and Planning Analysis Cell; Central Board of Excise and Customs; Indian Oil Corporation Limited; PRS.

Notes: Data includes tax collections (from cesses, royalties, customs duty, central excise duty, state sales tax, octroi, and entry tax, among others), dividends paid to the government, and profit on oil exploration.
Data sources: Petroleum and Planning Analysis Cell; Central Board of Excise and Customs; Indian Oil Corporation Limited; PRS.

Parliament

President’s Address 2014 to 2017: Plan vs. Performance

Roopal Suhag - February 6, 2017

Budget Session 2017 commenced with the President, Pranab Mukherjee, addressing a joint sitting of Parliament on January 31, 2017. This address by the President highlights the legislative and policy activities and achievements of the government in the previous year. In addition, it gives a broad indication of the government’s agenda for the year ahead. The address is followed by a motion of thanks that is moved in each House by ruling party MPs. This is followed by a discussion on the address and concludes with the Prime Minister replying to the points raised during the discussion.

In the lower house, the motion of thanks has begun today. It began in the upper house on February 2, 2017. Lok Sabha and Rajya Sabha have allocated two and three days for the discussion, respectively. In this context, we present an analysis of the salient points of the agenda proposed in the President’s address from 2014 to 2017 and the current status of its implementation.

Policy priority stated in the President’s address (2014 to 2017)

Current Status

Macroeconomy

GDP growth has made India the world’s fastest growing economies, among large economies.

Foreign exchange reserves have been at an all-time high, and inflation, current account deficit and fiscal deficit have consistently reduced since 2014.

The GDP is estimated to grow at 7.1% in 2016-17, compared to its growth of 7.9% in 2015-16.[i]

The Economic Survey 2016-17 has stated the GDP growth to be between 6.75% and 7.5% in 2017-18.[ii]

The average CPI inflation declined from 5.6% in December 2015 to 3.4% in December 2016.[iii] In the same period, food inflation also decreased from 6.4% from 1.4%.³

Current account deficit decreased from USD 14.7 billion in 2015-16 (April-September) to USD 3.7 billion in the corresponding period in 2016-17.[iv]

Foreign exchange reserves presently stand at Rs 24,54,950 crore, an increase of Rs 1,02,130 crore from 2016.[v]

Poverty eradication and financial inclusion

The Pradhan Mantri Jan Dhan Yojana was launched to provide universal access to banking facilities. The coverage under the scheme is close to 100%.

The proposed Postal Payment Bank of India will further boost financial inclusion.

Presently, around 27 crore accounts have been opened under the scheme.[vi] However, out of these, 25% of the accounts are zero balance accounts.⁶

The Indian Postal Payments Bank has started.[vii] The postal network with over 1.5 lakh post offices will also function as postal banks.⁷

Agriculture and water security

Pradhan Mantri Fasal Bima Yojana has expanded risk-coverage, doubled the sum insured, and facilitated low premium for farmers.

The government is also committed to implementation of Interlinking of Rivers Project.

Pradhan Mantri Fasal Bima Yojana has been implemented by 21 states.[viii] 3.66 crore farmers have been covered under the scheme, out of a total of 11 crore farmers in the country.[ix]

In April 2015, a Task Force was constituted on the Interlinking of Rivers Project.[x] The Task Force is yet to submit its report. The sub-Committee on restructuring the National Water Development Agency in September 2015 had recommended that a National Interlinking of Rivers Authority should be created through an Act of Parliament.[xi] So far, further steps have not been taken in this regard.

Energy

The Electricity (Amendment) Bill, 2014 has been introduced to bring reforms in the electricity sector.

Renewable energy capacity will manifold to 175 GW by 2022.

The Electricity (Amendment) Bill, 2014 is pending in the Parliament. The Standing Committee submitted its report on the Bill in May, 2015.[xii]

As of December 2016, 51 GW of renewable energy has been generated in the country.[xiii] However, in 2016-17, only 26% of the target of the generation of renewable energy could be achieved.¹³

Governance and legal reforms

Close to 1,800 obsolete legislation are at various stages of repeal.

My government is committed to providing 33% reservation to women in the Parliament and state Legislative Assemblies.

Amendments to the Prevention of Corruption Act are also on the anvil.

758 Appropriation Acts and 295 laws have been repealed.[xiv]^,[xv]

No Bill in relation to providing 33% reservation to women has been introduced yet.

The Prevention of Corruption (Amendment) Bill, 2013, is presently pending in Parliament. The Standing Committee and Rajya Sabha Select Committee have submitted their reports on the Bill.

Defence

One Rank One Pension scheme will be implemented.

Defence procurement procedure has been streamlined with a focus on indigenously designed, developed and manufactured weapon systems.

Recognising the importance of coastal security, the government will set up a National Maritime Authority.

The government will also build a National War Memorial to honour the gallantry of our soldiers.

The implementation of One Rank One Pension scheme has been initiated.[xvi] In 2016-17, Rs 12, 456 crore was allocated to the scheme.[xvii]

The Defence Procurement Policy 2016 added an additional category “Buy (Indian-Indigenously Designed, Developed and Manufactured) as the most preferred way of capital acquisition.[xviii]

The National Maritime Authority and National War Memorial are yet to be established.

Environment

Funds will be released to states and union territories for aggressive afforestation.

To conserve the Himalayan ecology, a National Mission on Himalayas will be launched.

Target for emission standards for motor vehicles has been drastically brought forward to achieve Bharat Stage –VI norm by 2021.

Parliament passed the Compensatory Afforestation Fund Bill, 2015 in July 2016.[xix] The Bill establishes the National Compensatory Afforestation Fund and a State Compensatory Afforestation Fund for each state. These Funds will be primarily spent on afforestation.

The National Mission on Himalayas is yet to be launched.

To make Bharat Stage-VI norms applicable by April 1, 2020, a draft notification was released in February 2016.[xx]

Rural and Urban Development

To develop 300 rural growth clusters across the country, Shyama Prasad Mukherji Rurban Mission has also been launched.

Mission Antyodaya, an intensive participatory planning exercise has been initiated.

Annual action plan for 500 cities with an outlay of Rs 50,000 crore has been approved.

To implement the Rurban mission, Rs 5,142 crore has been allocated for the period from 2015-16 to 2019-20.[xxi]

Under Mission Antyodaya, the release of funds has been lower than the allocated amount in the last three years, from 2014-15 to 2016-17.[xxii]

Under the Smart Cities Mission, Rs 4,572 has been released to 98 cities during the years 2015-16 and 2016-17.[xxiii]

Health

My government will formulate a New Health Policy and roll out a National Health Assurance Mission.

Pradhan Mantri Bharatiya Jan Aushadi Pariyojana has been launched to ensure that the poor have access to quality medicines at affordable prices.

A group was constituted in July 2014 to prepare a comprehensive background paper for the roll out of the National Health Assurance Mission.[xxiv] Further progress in this regard has not been made.

The draft National Health Policy was released in December 2014 for public comments and suggestions.[xxv] The Policy has not been finalised yet.

Under the Pradhan Mantri Bharatiya Jan Aushadi Pariyojana, Pradhan Mantri Bhartiya Janaushadhi Kendras are proposed to be opened in all 630 districts of the country.[xxvi]

Women and child development

A Bill to amend the Juvenile Justice Act has been introduced in Parliament to reform the law relating to juvenile offences.

The Juvenile Justice (Care and Protection of Children) Bill, 2014 was passed by Parliament in December 2015.[xxvii] The Bill permits juveniles between the ages of 16-18 years to be tried as adults for heinous offences.

[Sources: President’s Address to the Parliament from 2014 to 2017; PRS.]

For important highlights from the President’s address in 2017, please see here. For an analysis of the status of implementation of the announcements made in the 2016 address, please see here.

[i] “Press note on First Revised Estimates of National Income, 2015-16”, Ministry of Statistics and Programme Implementation, January 31, 2017, http://mospi.nic.in/sites/default/files/press_release/nad_PR_31jan17.pdf.

[ii] Economic Survey, 2016-17, http://finmin.nic.in/indiabudget2017-2018/e_survey.asp.

[iii] “Press Release Consumer Price Index Numbers on Base 2012=100 for Rural, Urban and Combined for the Month of December 2016”, Ministry of Statistics and Programme Implementation, January 12, 2017,http://mospi.nic.in/sites/default/files/press_release/CPI_PR12jan17th.pdf

[iv] “Developments in India’s Balance of Payments during the second quarter of 2016-17”, Reserve Bank of India, December 13, 2016, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=38884.

[v] “Developments in India’s Balance of Payments during the second quarter of 2016-17”, Reserve Bank of India, December 13, 2016, https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=38884.

[vi] Progress Report, Pradhan Mantri Jan Dhan Yojana (Last accessed on January 24, 2017),http://www.pmjdy.gov.in/account.

[vii] “Cabinet approves setting up of India Post Payments Bank”, Cabinet, June 1, 2016.

[viii] “Achievements of Ministry of Agriculture and Farmers Welfare”, Ministry of Agriculture, January 2, 2016.

[ix] “Agricultural Statistics at a Glance 2015”, Department of Agriculture, Cooperation and Farmer’s Welfare, Ministry of Agriculture and Farmer’s Welfare, http://eands.dacnet.nic.in/PDF/Agricultural_Statistics_At_Glance-2015.pdf.

[x] “Task Force on Interlinking Rivers Constituted”, Press Information Bureau, Ministry of Water Resources, April 14, 2015.

[xi] Special Committee for Interlinking of Rivers, National Water Development Agency,http://www.nwda.gov.in/writereaddata/ilr/notification.pdf.

[xii] Report No. 4, Standing Committee on Energy, ‘The Electricity (Amendment) Bill, 2014’, Lok Sabha, May 2015, Standing Committee on Energy, http://www.prsindia.org/uploads/media/Electricity/SC%20report-Electricity.pdf.

[xiii] “Physical Progress (Achievements)”, Ministry of New and Renewable Energy, March 30, 2015,http://mnre.gov.in/mission-and-vision-2/achievements/.

[xiv] Appropriation Acts (Repeal) Act, 2016, http://lawmin.nic.in/ld/Act22of2016AppropriationActsrepeal.pdf.

[xv] Repealing and Amending Act, 2016, http://lawmin.nic.in/ld/Act23of2016RepealingandAmending.pdf.

[xvi] 12(1)/2014/D (Pen/PoI)- Part II, Government of India, Ministry of Defence, Department of Ex- Servicemen Welfare, November 7, 2015, http://www.desw.gov.in/sites/upload_files/desw/files/pdf/OR OP-DESW-MOD.pdf.

[xvii] Lok Sabha Unstarred Question 1696, Ministry of Defence, November 25, 2016,http://164.100.47.190/loksabhaquestions/annex/10/AU1696.pdf.

[xviii] “Year End Review 2016”, Ministry of Defence, December 31, 2016,http://pib.nic.in/newsite/PrintRelease.aspx?relid=156049.

[xix] The Compensatory Afforestation Fund Act, 2016,http://www.prsindia.org/uploads/media/Compensatory%20Afforestation/CAMPA%20act,%202016.pdf.

[xx] Rajya Sabha Unstarred Question No 82, Ministry of Road Transport and Highways, April 25, 2016.

[xxi] Rajya Sabha Unstarred Question No 914, Department of Rural Development, May 2, 2016 ,http://164.100.47.234/question/annex/239/Au914.pdf.

[xxii] Lok Sabha Unstarred Question No 4443, Ministry of Housing and Urban Poverty Alleviation, December 14, 2016, http://164.100.47.190/loksabhaquestions/annex/10/AU4443.pdf.

[xxiii] Lok Sabha Unstarred Question No 199, Ministry of Urban Development, November 16, 2016,http://164.100.47.190/loksabhaquestions/annex/10/AU199.pdf.

[xxiv] “Rolling out of National Health Assurance Mission”, Press Information Bureau, Ministry of Health and Family Welfare, July 15, 2014.

[xxv] Draft National Health Policy 2015, December 2014, Ministry of Health and Family Welfare,http://www.mohfw.nic.in/showfile.php?lid=3014.

[xxvi] Pradhan Mantri Bharatiya Jan Aushadi Pariyojana guidelines,http://janaushadhi.gov.in/data/Individuals_December_2016.pdf.

[xxvii] The Juvenile Justice (Care and Protection of Children) Act, 2015,http://www.prsindia.org/uploads/media/Juvenile%20Justice/Juvenile%20Justice%20Act,%202015.pdf.

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