How the price of petrol and diesel is fixed?

The prices of petrol and diesel are determined considering various factors in mind. Firstly, the cost of crude oil, secondly all kinds of the taxes that the Centre and states impose on the very same. Alongside, there also exists the commission of a dealer as well as VAT, both of which get added before petrol and diesel are actually being sold out to the customers.

Both petrol and diesel are considered to be very expensive in the present times in our country. The reason is because of the taxes which are levied by the Central and State Government on to these fuels. If there werenโ€™t any taxes imposed on both these fuels, they would have cost the consumer much cheaper. Taxes on the fuel are considered to be a huge revenue generator for the government and there it becomes a very tough decision for both the governments at the state and Central level to cut down the prices of fuel in the country.

The prices of petrol and diesel keep on fluctuating with each passing day. This is because of the dynamic pricing system in our country which clearly reflects the fluctuations in the oil market globally. Previously, the prices of petrol were revised every fortnight and they were changed on the 1st as well as 16th day of every month. However, from the 16th of June, 2017 onwards, a new scheme was introduced and implemented in the country under which the prices of the fuels were to be revised every morning at an exact time of 6 am. This particular change from the APM (administrative price mechanism) to dynamic pricing was made in order to make sure that the advantage of the smallest modification in the international oil prices could be put into effect by all the dealers. Apart from this, this move was particularly made considering the fact that it could ward off massive leaps in the price during the end of the fortnight.

One of the major differences in between APM and dynamic pricing is the price decontrol. Prior to the implementation of dynamic pricing, all the private companies protested the government-controlled pricing by claiming that it reduced in their profit margin. They also claimed that it impacted the overall competition, thereby leaving the consumers with a little as well as restricted choice. On the other side, marketing pricing not only permitted for a fair deal in terms of competition, but also benefitted the consumers and brought parity with the international prices of the products. Furthermore, it was believed that the dynamic pricing would keep all the speculative market forces in check. Since India imports a total of 84 percent of petroleum products, any modification in the global crude oil prices clearly impacts the local prices within the country. Thus, if the global crude prices in the country are high, then India sells its petrol at a higher rate. Additionally, dealer commission, excise duty as well as VAT are added on to the price to finally decide on the retail price of the fuel.

Various taxes levied on petrol and diesel in the country:

The prices of petrol and diesel in the country have four different components. Following gives an insight into the price breakdown of petrol and diesel in the country:

  • Price charged to the Dealers:

Various oil marketing companies tend to charge this price to the dealers. Organizations such as HPCL, IOCL as well as BPCL may charge a marginally diverse price to all the dealers, considering different factors. The priced so charged on the fuel to the dealers is arrived and decided basing on several factors such as the price of global crude oil in the Indian basket, price incurred on freight, exchange rate of the US dollar, price incurred in the process of refining and many others.

  • Central Excise Duty:

The Central Excise Duty is levied by the Government of India. This involves a fixed amount and not a percentage on to the price. The excise duty on petrol increased from Rs.9.48 per liter to a high of Rs.21.48 per liter by January 2016. As of the figures of October 2017, the excise duty was reduced by Rs.2 per liter. This reduction was done by the BJP government at the Centre. The excise duty on diesel was increased by over four times from Rs.3.56 per liter to a high of Rs.17.33 per liter respectively. Later on, the duty was decreased by Rs.2 per liter in October 2017.

  • Dealer Commission:

The dealer commission involves the amount of the commission that is paid by the OMCs to the petrol pump dealers. The dealers then manage all their expenses with this particular commission.

  • Sales Tax/State specific VAT:

The state governments of the concerned states impose a Value Added Tax (VAT) or sales tax on to the price of the petrol so arrived by adding dealer price, dealer commission and central excise duty. This is generally a combination of percentage and a fixed amount. The State VAT on the petrol is 25 percent in the 21 states of India. Mumbai has the highest figure at 39.54 percent. Similarly, the State VAT on diesel is more than 20 percent in the 14 states of India. Andhra Pradesh has the highest figure at 28.31 percent respectively.

Fuel rates in different countries:

Fuel rates in different countries are different from India. The following list gives a hint into the different fuel prices in different countries:

  1. The United States:

Petrol in the United States is being sold at the rate of Rs.53.88 per liter while diesel is being sold at the rate of Rs.58.9 per liter. The country is considered as one of the top oil-producing counties in the world. The prices of fuel in the United States are still considered to be lower than most of the European countries. US produces an average of 14.86 million barrel per day which happens to be 15.3 percent of the total oil production of the world.

  • Pakistan:

Petrol in Pakistan is being sold at the rate of Rs.65.2 per liter. Diesel in the country is being sold at the rate of Rs.61.56 per liter. New Prime Minister of Pakistan has now announced a cut in the prices of petrol, diesel and kerosene in order to contain the rising inflation in the country.

  • Sri Lanka:

Unlike India, the prices of fuel in Sri Lanka change on the 10th day of every month. Petrol in the country has been priced at Rs.69.14 per liter while diesel has been priced at Rs.51.9 per liter respectively. Recently, the country has introduced the monthly pricing formula with an object to compensate the prices as per the price variation of global crude oil.

  • Nepal:

Petrol has been priced at Rs.71.25 per liter in Nepal. At the same time, diesel in the country has been priced at the rate of Rs.59.43 per liter respectively.

  • China:

According to the latest reports and figures, Petrol in China has been priced at the rate of Rs.78.95 per liter. In the capital city, the prices of petrol range at Rs.70.49 per liter while diesel has been priced at the rate of Rs.70.49 per liter respectively. The country imports an average of 8.4 million barrels per day.

  • The United Kingdom:

Similar to other European countries, the United Kingdom levies a huge tax on its commercial fuel which altogether makes up to over 70 percent of the cost of a gallon of fuel. Petrol in the country has been ranged at Rs.119.9 per liter whereas the price of diesel in the country is Rs.121.8 per liter.

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Chalo Niveshak

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