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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.
As of April 22, Uttar Pradesh has seen 1,449 cases of coronavirus disease (COVID-19) and accounts for 6.8% of the total cases in India. Of the 1,449 persons infected of the disease, 173 have recovered and 21 have died (3.1% of the total deaths in India due to the disease). These proportions are quite lower as compared to the state’s share in the country’s population (16.5% as per Census 2011). However, the same holds for the number of persons tested for COVID-19 as well, as of the 4.85 lakh persons tested in India, 37,490 persons (7.7%) have been tested in Uttar Pradesh.
To mitigate the spread of COVID-19 in the state, the state government has taken various measures over the past 2-3 months, spanning across areas such as health, law and order, and social welfare. This includes imposition of lockdown in 16 districts starting March 23, which was extended to the entire state on March 24, before the nation-wide lockdown came into effect. This blog post looks at the key measures taken by the state government in response to COVID-19 and the lockdown.
Before the lockdown
One of the earliest steps the state government took in response to COVID-19 was on January 27, when it planned to set up a 10-bed isolation ward in every district hospital and medical college, and increased vigilance on the Indo-Nepal border and airports. Subsequently, on March 15, it ordered all travellers coming from foreign countries to be kept under surveillance and quarantine for a period of 14 days. Between March 13 and March 17, the government ordered the closure of educational institutions, cinema halls, museums, and tourist spots to prevent public gatherings. On March 20, this was extended to include malls, and all religious, social, and cultural activities. Further, to prevent unnecessary crowding, government hospitals were ordered to provide emergency services only.
Welfare measures: The state government also undertook certain relief measures to provide aid to the persons affected due to COVID-19 and the consequent loss of economic activities. These include: (i) free treatment for all persons infected with COVID-19, (ii) order to all employers to provide 28-days paid leave to infected or quarantined persons under the Epidemic Diseases Act, 1897, (iii) another order under the Act to all shops and factories to provide paid leave to all workers if the government orders temporary closure of their business, (iv) free one-month ration to 1.65 crore registered construction workers and daily wage labourers for April, and (v) Rs 1,000 per month of direct cash support to 20.4 lakh registered construction workers, and to 15 lakh street vendors and other unregistered workers.
During the lockdown
During the lockdown, the state government’s measures have been aimed towards: (i) strengthening the medical response in the state, (ii) providing relief to various sections of the society from issues being faced during the lockdown, including UP migrants in other states, and (iii) addressing difficulties being faced in the supply of essential goods and services. For implementation of these measures, the government constituted 11 committees on March 26 for the work related to various departments. On April 13, similar committees were constituted under the respective Ministers.
Healthcare
Medical facilities: On March 23, committees were constituted in each district to determine the process for purchase of emergency medical equipment. On March 25, the government ordered each of the 51 government and private medical colleges in the state to set up isolation wards of 200-300 beds. It also proposed to conduct training programmes at district-level for AYUSH doctors, nursing staff, retired health workers, and officers of army medical corps. This was subsequently made more comprehensive by including lab technicians, ward boys, and sweepers.
Testing: On April 3, the government ordered setting up one testing lab in every medical college, or in a district hospital, in case there is no medical college in the district. On April 20, the government decided to encourage the use of pool testing within the state to contain the spread of COVID-19. It also approved consideration of plasma therapy as a treatment option for COVID-19.
Funding: On April 3, the UP COVID Care Fund was set up for strengthening treatment facilities in medical colleges, and for expenditure on personal protection equipment, test kits, ventilators, isolation and quarantine wards, and telemedicine. Subsequently, two Ordinances were promulgated on April 8 to deduct the salaries and allowances of Ministers, MLAs, and MLCs for 2020-21 by 30% to donate Rs 20 crore to the UP COVID Care Fund. Further, Rs 1,509 crore was made available for the Fund by suspending the Local Area Development scheme for legislators for a period of one year. In addition, the government increased the limit of the Contingency Fund from Rs 600 crore to Rs 1,200 crore through an Ordinance to allow for extra-budgetary expenditure on COVID-19 related measures.
Hotspots: On April 8, the government sealed the hotspot areas across the state by prohibiting any movement in the area. Only medical, sanitisation, and doorstep delivery teams are allowed to enter and exit the hotspot areas, and all enterprises are required to be completely closed. The government has also ordered for door-to-door checking of the residents living in hotspot areas.
Essential goods and services
Other than the distribution of ration, the state government is providing food to persons staying in night shelters, with community kitchens being set up for persons who are unable to cook. On April 17, the government made access to the Public Distribution System (PDS) universal till June 30, irrespective of the availability of ration card and Aadhaar card. In case of death of a person, his ration card, maintenance allowance, and other benefits will be provided to his family as per their eligibility.
To prevent profiteering from sale of essential goods, on March 28, the government ordered the shopkeepers to display the price list in their shops. On March 29, the government decided that the supply of electricity and water will be ensured and these connections will not be cut for one month. Subsequently, it also ordered that fixed charges for electricity will not be levied for industries during the period of lockdown. On April 3, the government ordered banks to remain open on holidays so that government relief assistance is available to the beneficiaries.
Migrants
From other states: On March 26, the state government decided that migrant workers travelling through the state to other states such as Bihar will be provided food and shelter, and sent safely to their destination. Subsequently, on March 28, the government decided to prepare the list of migrants who came to the state, provide them food, and keep them under surveillance and quarantine. On April 22, the government allowed migrants from other states to go back to their home state if the respective state government decides to take them back.
From UP: The state government requested other states to provide food and shelter to the migrants from UP present in their states, and requested the migrants to stay where they are. To provide further support to migrants, the state government appointed senior administrative and police officials as nodal officers for each state where migrants from UP might be present. These nodal officers are the main points of contact for migrants living in the respective states. They are also responsible for coordinating with the respective state government and local administration to ensure the essential needs of migrants such as food and shelter are met, and alleviate their difficulties, if any.
On April 19, the government brought nearly 8,000 students who were studying in Kota back to the state. The government allowed them to be kept in quarantine in their homes provided they download the Aarogya Setu app.
Economy
The state government is encouraging the purchase of produce by Farmer Producer Organisations directly from farms as an alternate option to mandis. On April 13, the government formed a committee of officials to prepare a workplan for attracting investment made by countries such as USA and Japan, which is moving out of China, to the state. In this regard, the government is planning to contact the embassies of various countries. On April 19, it constituted another committee to work towards providing employment to about 5 lakh migrant workers who have returned to the state in the last 45 days. On April 20, the government also allowed construction work on expressway projects to begin after preparation of an action plan. In line with the advisories issued by the central government, the state government decided to provide relaxations from the lockdown in districts with less than 10 cases starting April 20. The district administrations are preparing action plans for opening up industries in these districts, excluding the ones situated in the hotspot areas.