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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.

The Union government’s Cabinet Committee on Security recently gave clearance to the Home Ministry’s NATGRID project.  The project aims to allow investigation and law enforcement agencies to access real-time information from data stored with agencies such as the Income Tax Department, banks, insurance companies, Indian Railways, credit card transactions, and more.  NATGRID, like a number of other government initiatives (UIDAI), is being established through governmental notifications rather than legislation passed in Parliament.  The examination of this issue requires an assessment of the benefits of legislation vis-a-vis government notifications. Government notifications can be issued either under a specific law, or independent of a parent law, provided that the department issuing such notification has the power to do so.  Rules, regulations which are notified have the advantage of flexibility since they can be changed without seeking Parliamentary approval. This advantage of initiating projects or establishing institutions through government notifications is also potentially of detriment to the system of checks and balances that a democracy rests on.  For, while legislation takes a longer time to be enacted (it is discussed, modified and debated in Parliament before being put to vote), this also enables elected representatives to oversee various dimensions of such projects.  In the case of NATGRID, the process would provide Parliamentarians the opportunity to debate the conditions under which private individual information can be accessed, what information may be accessed, and for what purpose.  This time consuming process is in fact of valuable import to projects such as NATGRID which have a potential impact on fundamental rights. Finally, because changing a law is itself a rigorous process, the conditions imposed on the access to personal information attain a degree of finality and cannot be ignored or deviated from.  Government rules and regulations on the other hand, can be changed by the concerned department as and when it deems necessary.  Though even governmental action can be challenged if it infringes fundamental rights, well-defined limits within laws passed by Parliament can help provide a comprehensive set of rules which would prevent their infringement in the first place. The Parliamentary deliberative process in framing a law is thus even more important than the law itself.  This is especially so in cases of government initiatives affecting justiciable rights.  This deliberative process, or the potential scrutiny of government drafted legislation on the floor of Parliament ensures that limitations on government discretion are clearly laid down, and remedies to unauthorised acts are set in stone.  This also ensures that the authority seeking to implement the project is The other issue pertains to the legal validity of the project itself.  Presently, certain departmental agencies maintain databases of personal information which helps them provide essential services, or maintain law and order.  The authority to maintain such databases flows from the laws which define their functions and obligations.  So the power of maintaining legal databases is implicit because of the nature of functions these agencies perform.  However, there is no implicit or explicit authorization to the convergence of these independent databases. One may argue that the government is not legally prevented from interlinking databases.  However, the absence of a legal challenge to the creation of NATGRID does not take away from the importance of establishing such a body through constitutionally established deliberative processes.  Therefore, the question to be asked is not whether NATGRID is legally or constitutionally valid, but whether it is important for Parliament to oversee the establishment of NATGRID. In October 2010, the Ministry of Personnel circulated an “Approach paper for a legislation on privacy”.  The paper states: “Data protection can only be ensured under a formal legal system that prescribes the rights of the individuals and the remedies available against the organization that breaches these rights. It is imperative, if the aim is to create a regime where data is protected in this country, that a clear legislation is drafted that spells out the nature of the rights available to individuals and the consequences that an organization will suffer if it breaches these rights.” As the lines above exemplify, it is important for a robust democracy to codify rights and remedies when such rights may be potentially affected.  The European Union and the USA, along with a host of other countries have comprehensive privacy laws, which also lay down conditions for access to databases, and the limitations of such use.  The UIDAI was established as an executive authority, and still functions without statutory mandate.  However, a Bill seeking to establish the body statutorily has been introduced, and its contents are being debated in the Parliamentary Standing Committee on Finance and the Bill has also been deliberated on by civil society at large. A similar approach is imperative in the case of NATGRID to uphold the sovereign electorate’s right to oversee institutions that may affect it in the future.