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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.

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%
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.

Petrol price

Diesel price

 

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.

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.

We wrote a piece for ibnlive.com on the major differences between the government’s Lok Pal Bill, 2011 and the Jan Lok Pal Bill drafted by Anna Hazare’s group.  The note is reproduced below.   The streets are witnessing a demand that the government’s Lok Pal Bill be replaced by the Jan Lok Pal Bill (JLP) as drafted by the team led by Anna Hazare.  There are several significant differences between the two bills.  In this note, we describe the some of these differences. (See here for more on the Lok Pal Bill).   First, there is a divergence on the jurisdiction of the Lok Pal.  Both bills include ministers, MPs for any action outside Parliament, and Group A officers (and equivalent) of the government.  The government bill includes the prime minister after he demits office whereas the JLP includes a sitting prime minister.  The JLP includes any act of an MP in respect of a speech or vote in Parliament (which is now protected by Article 105 of the Constitution).  The JLP includes judges; the government bill excludes them.  The JLP includes all government officials, while the government bill does not include junior (below Group A) officials.  The government bill also includes officers of NGOs who receive government funds or any funds from the public; JLP does not cover NGOs.   Second, the two Bills differ on the composition.  The government bill has a chairperson and upto 8 members; at least half the members must have a judicial background.  The JLP has a chairperson and 10 members, of which 4 have a judicial background.   Third, the process of selecting the Lok Pal members is different.  The JLP has a two stage process.  A search committee will shortlist potential candidates.  The search committee will have 10 members; five of these would have retired as Chief Justice of India, Chief Election Commissioner or Comptroller and Auditor General; they will select the other five from civil society.   The Lok Pal chairperson and members will be selected from this shortlist by a selection committee.  The selection committee consists of the prime minister, the leader of opposition in Lok Sabha, two supreme court judges, two high court chief justices, the chief election commissioner, the comptroller and auditor general, and all previous Lok Pal chairpersons.   The government bill has a simpler process.  The selection will be made by a committee consisting of the prime minister, the leaders of opposition in both Houses of Parliament, a supreme court judge, a high court chief justice, an eminent jurist, and an eminent person in public life.  The selection committee may, at its discretion, appoint a search committee to shortlist candidates.   Fourth, there are some differences in the qualifications of a member of the Lok Pal.  The JLP requires a judicial member to have held judicial office for 10 years or been a high court or supreme court advocate for 15 years.  The government bill requires the judicial member to be a supreme court judge or a high court chief justice.  For other members, the government bill requires at least 25 years experience in anti-corruption policy, public administration, vigilance or finance.  The JLP has a lower age limit of 45 years, and disqualifies anyone who has been in government service in the previous two years.   Fifth, the process for removal of Lok Pal members is different.  The government bill permits the president to make a reference to the Supreme Court for an inquiry, followed by removal if the member is found to be biased or corrupt.  The reference may be made by the president (a) on his own, (a) on a petition signed by 100 MPs, or (c) on a petition by a citizen if the President is then satisfied that it should be referred.  The President may also remove any member for insolvency, infirmity of mind or body, or engaging in paid employment.   The JLP has a different process. The process starts with a complaint by any person to the Supreme Court.  If the court finds misbehaviour, infirmity of mind or body, insolvency or paid employment, it may recommend his removal to the President.   Sixth, the offences covered by the Bills vary.  The government bill deals only with offences under the Prevention of Corruption Act.  The JLP, in addition, includes offences by public servants under the Indian Penal Code, victimization of whistleblowers and repeated violation of citizen’s charter.   Seventh, the government bill provides for an investigation wing under the Lok Pal.  The JLP states that the CBI will be under the Lok Pal while investigating corruption cases.   Eighth, the government bill provides for a prosecution wing of the Lok Pal.  In the JLP, the CBI’s prosecution wing will conduct this function.   Ninth, the process for prosecution is different.  In the government bill, the Lok Pal may initiate prosecution in a special court.  A copy of the report is to be sent to the competent authority.  No prior sanction is required.  In the JLP, prosecution of the prime minister, ministers, MPs and judges of supreme court and high courts may be initiated only with the permission of a 7-judge bench of the Lok Pal.   Tenth, the JLP deals with grievance redressal of citizens, in addition to the process for prosecuting corruption cases.  It requires every public authority to publish citizen’s charters listing its commitments to citizens.  The government bill does not deal with grievance redressal.   Given the widespread media coverage and public discussions, it is important that citizens understand the differences and nuances.  This may be a good opportunity to enact a law which includes the better provisions of each of these two bills.