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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 Arms Act, 1959 governs matters related to acquisition, possession, manufacture, sale, transportation, import and export of arms and ammunition. It defines a specific class of ‘prohibited’ arms and ammunitions, restricts their use and prescribes penalties for contravention of its provisions. Section 7 of the Act forbids the manufacture, sale, and use of prohibited arms and ammunition unless it has been specially authorised by the central government.1 Section 27(3) prescribes that any contravention of Section 7 that results in the death of any person 'shall be punishable with death'.2 Section 27(3) of the Act was challenged in the Supreme Court in 2006 in State of Punjab vs. Dalbir Singh. The final verdict in the case was pronounced last week. The judgment not only affects the Act in question but may have important implications for criminal law in the country. Legislative history of Section 27 When the law was first enacted, Section 27 provided that possession of any arms or ammunition with intent to use the same for any unlawful purpose shall be punishable with imprisonment up to seven years and/ or a fine. This section was amended in 1988 to provide for enhanced punishments in the context of escalating terrorist and anti-national activities. In particular, section 27(3) was inserted to provide for mandatory death penalty. The Judgment The Supreme Court judgment says that Section 27(3) is very 'widely worded'. Any act (including use, acquisition, possession, manufacture or sale) done in contravention of Section 7 that results in death of a person will attract mandatory death penalty. Thus, even if an accidental or unintentional use results in death, a mandatory death penalty must be imposed. The bench quotes relevant sections of an earlier judgment delivered in 1983, in Mithu vs. State of Punjab. In this case, the court had looked into the constitutional validity of mandatory death sentence. The final verdict had ruled that a provision of law which deprives the Court of its discretion, and disregards the circumstances in which the offence was committed, can only be regarded as 'harsh, unjust and unfair'. The judgment goes on to say that the concept of a 'just, fair and reasonable' law has been read into the guarantees under Article 14 (Equality before law) and Article 21 (Protection of life and personal liberty) of the Constitution. A law that imposes an irreversible penalty such as death is 'repugnant to the concept of right and reason'. Therefore, Section 27 (3) of the Arms Act, 1959 is unconstitutional. Section 27(3) is also unconstitutional in that it deprives the judiciary from discharging its duty of judicial review by barring it from using the power of discretion in the sentencing procedure. What happens now? Under Article 13 of the Constitution, laws inconsistent with the Constitution shall be null and void. Therefore, Section 27(3) of the Arms Act, 1959 shall now stand amended. Courts shall have the discretion to impose a lesser sentence. It is noteworthy that the Home Minister had also introduced a Bill in the Lok Sabha on the 12th of December, 2011 to amend the Arms Act, 1959. The Bill seeks to remove the words ‘shall be punishable with death’ and replace these with ‘shall be punishable with death or imprisonment for life and shall also be liable to fine’. This Bill is currently being scrutinized by the Standing Committee. Notes: 1) Section 7 of the Arms Act, 1959: “7. Prohibition of acquisition or possession, or of manufacture or sale, of prohibited arms or prohibited ammunition. No person shall -- (a) acquire, have in his possession or carry; or (b) use, manufacture, sell, transfer, convert, repair, test or prove; or (c) expose or offer for sale or transfer or have in his possession for sale, transfer, conversion, repair, test or proof; any prohibited arms or prohibited ammunition unless he has been specially authorised by the Central Government in this behalf.” 2) Section 27(3) of the Arms Act, 1959: “27(3) Whoever uses any prohibited arms or prohibited ammunition or does any act in contravention of section 7 and such use or act results in the death of any other person, shall be punishable with death.” Sources: Arms Act, 1959; Supreme Court judgment
