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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.
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 |
||
| 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% |
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.
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.
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.
The right to food and food security have been widely discussed in the media. The National Food Security Bill, 2011, which makes the right to food a legal right, is currently pending in Parliament. The Bill seeks to deliver food security by providing specific entitlements to certain groups of individuals through the Targeted Public Distribution System, a large-scale subsidised foodgrain distribution system. The Standing Committee on Food, Consumer Affairs and Public Distribution presented its report on the Food Security Bill on January 17, 2013. It made recommendations on key issues such as the categorisation of beneficiaries, cash transfers and cost sharing between the centre and states. A comparison of the Bill and Committee’s recommendations are given below.
|
Issue |
Food Security Bill |
Standing Committee’s Recommendations |
| Who will get food security? | 75% of the rural and 50% of the urban population (to be divided into priority and general categories). Of these, at least 46% of the rural and 28% of urban populations will be priority (the rest will be general). | Uniform category: Priority, general and other categories shall be collapsed into ‘included’ and ‘excluded’ categories.Included category shall extend to 75% of the rural and 50% of the urban population. |
| How will they be identified? | The centre shall prescribe guidelines for identifying households; states shall identify the specific households. | The centre should clearly define criteria for exclusion and consult with states to create inclusion criteria. |
| What will they get? | Priority:7 kg foodgrains/person/month (at Rs 3/kg for wheat, Rs 2/kg for rice, Rs 1/kg for coarse grains).General: 3 kg foodgrains/person/ month (at 50% of MSP). | Included: 5 kg foodgrains/person/month (at subsidised prices). Pulses, sugar, etc., should be provided in addition to foodgrains. |
| Reforms to TPDS | Doorstep delivery of foodgrains to ration shops, use of information technology, etc. | Implement specific IT reforms, for e.g. CCTV cameras in godowns, use of internet, and GPS tracking of vehicles carrying foodgrains. Evaluate implementation of TPDS every 5 yrs. |
| Cost-sharing between centre and states | Costs will be shared between centre and states. Mechanism for cost-sharing will be determined by the centre. | Finance Commission and states should be consulted regarding additional expenditure to be borne by states to implement the Bill. |
| Cash Transfers | Schemes such as cash transfer and food coupons shall be introduced in lieu of foodgrains. | Cash transfers should not be introduced at this time. Adequate banking infrastructure needs to be set up before introduction. |
| Time limit for implementation | The Act shall come into force on a date specified by the centre. | States to be provided reasonable time limit i.e., 1 year, after which Act will come into force. |
To access the Bill, a detailed comparison of the Standing Committee recommendations and the Bill, and other relevant reports relevant, see here.
