Petrol Price In India

Analysing fuel pricing in India

Being one of the largest oil importers in the world, India today important more than 70% of the crude oil requirements. When the price in the crude oil increases, the price of petrol and diesel in India too increases simultaneously. Apart from that, a lot of factors come in to play to determine the fuel prices. Excise duty, VAT, freight charges etc include while calculating the petrol prices. Earlier, the prices were fixed every fortnight and now it is been changed to dynamic fuel pricing method according which the prices are revised and fixed every day. Let us look at the petrol price in India in detail and why they are high in the recent times.

Differences in petrol pricing

One might notice that petrol prices in State may be higher than the other. What makes the difference? As the fuel prices are kept out of GST tax regime, the Centre and State levy a different tax. This leads to the variations in petrol prices. For example, in a city where there is huge demand, the prices tend to be higher.

Mumbai has the highest price of petrol at Rs 86.72 per litre, followed by Patna and Hyderabad at Rs 85.51 per litre and Rs 84.09 per litre, as on 4th September 2018. The price of petrol in Jaipur is Rs 82.38 per litre. The lowest price of petrol is in Chandigarh at Rs 76.36 per litre, followed by Bhubaneshwar at Rs 78.16 per litre.

How frequently are petrol prices computed?

The government of India has changed its criterion of the fuel pricing. It is now called the dynamic fuel pricing model. As per this new model effective from 16th June 2017, the petrol price is calculated on a daily basis instead of fortnightly basis. This model is aimed at bringing about transparency and minimising incidents of manipulation by government and political parties. Now, all the state-owned oil marketing companies such as Indian Oil, Shell India, Bharat Petroleum, and Hindustan Petroleum are following this model.

As per the dynamic fuel pricing model, rates will change at 6 am daily, based on the change in previous day’s cost. The various ways through which you can access the daily change in petrol prices are:

1) App

You can track the prices through the apps - Fuel@IOC - IndianOil. The app lets you know a daily update on the revisions in all cities. It can be downloaded by visiting the Google Play store and Apple Store. BPCL also has a similar app called SmartDrive, while HP’s very own app is called MYHPCL.

Send a text - (Retail Sale Price) RSP< SPACE >DEALER CODE to 9224992249 (For Indian Oil) For Bharat Petroleum, the number is 9223112222. For Hindustan Petroleum, you can send an SMS HPPRICEDEALERCODE to 9222201122. Note: Petrol re-filling stations also display the dealer code of each petrol pump.

3) Website

You can access the daily petrol prices on the Indian Oil website using the RO locator. The website has prices listed as per the retail outlets of Indian Oil.

Benefits of dynamic fuel pricing

Experts believe that this new pricing model will pass on the benefit of even the minutest change in international oil prices to the dealers and the consumers. Earlier, there could be sudden moves in petrol prices that could be seen over the fortnightly calculation, the dynamic model removes such anomalies. This way, India rises on the international stage and also joins the other advanced countries, which already follow this fuel pricing model.

Industry insiders also believe that the Dynamic pricing model will help to curb speculative forces and there will parity in the domestic as well as international price of petrol and diesel.

The daily changes in rates of the petrol prices will make consumers more aligned with the state. If there is a decline in crude oil prices, the benefit will be passed on to the customer the very next day. On the other hand, if the crude oil prices rise, the oil marketing companies will be able to pass on the price hike to the consumers.

Why are petrol prices so high in India?

The petrol prices are higher than the neighbouring countries of Pakistan, Bangladesh and Sri Lanka. The government, over the years has added many taxes on the core fuel price, making it expensive for consumers. Moreover, geopolitical situations in the US and the Gulf nations also pressurizes the supply of crude oil, thus impacting petrol prices.

The government plans to bring about more measure to bring down the price of petrol in India. However, it remains to be seen if the states co-operate with the Centre, so that a long-term solution can be found to arrest the rising fuel prices in India.

What are the components of petrol prices?

The pricing of petrol is made up of different components, which are:

Free on-Board Price (FOB):The purchase price of petrol is called Free On-Board Price. Actually, this is the price paid by the Indian oil marketing companies to purchase the crude oil from overseas dealers.

Customs Duty: Customs Duty is the tax imposed by the Government of India on the import of crude oil.

Import Parity Price: Import parity price (IPP) is the combined price of petrol paid by Indian oil marketing companies at an Indian port. IPP is thus, the sum of import charges, customs duty, and cost and freight price.

Refinery Transfer Price: Refinery transfer price is the price settled by oil marketing companies to refineries for transferring the petrol there.

Inland Freight: Inland freight is the transportation price paid by oil marketing companies for transferring petrol from refineries to retail outlets.

Depot Price: Depot price is the price that owners of retail outlets pay to purchase the petrol from oil marketing companies.

Freight:The oil is imported from overseas dealers by Indian oil companies and thus there is a transportation involved. The price paid for transportation of oil is call Freight charges and this is added to the Free On-Board Price. This combined price is known as the cost and freight price.

Import Charges: Three charges mainly add up to Import charges. These are insurance charges, port dues, and ocean losses. The premium which is paid to the Insurance provider for obtaining the monetary protection is called Insurance charges. Port dues are charges paid in lieu of availing the facilities at the port.

Excise Duty: This is a duty imposed by the Central Government on petrol imported. This rate would be uniform throughout the country. Currently VAT and road cess charged is Rs. 19.48/Lt.

VAT: Value-added tax (VAT) is the tax imposed by the state government on petrol. VAT differs across states.

Factors affecting petrol prices in India

The following factors affect petrol prices in India

Crude Oil Price: Petrol Price is directly related to the crude oil. If the cost of crude oil increases, then the retail selling price (RSP) of petrol will also increase. If it declines, the final price of petrol will also decline. There are many factors which impact the cost of crude oil such as seasonal variations, demand and supply factors, the exchange rate fluctuation, etc.

Exchange Rate: The US Dollar is valued at the Indian rupees by the Reserve Bank of India, which is the apex bank of India. Since crude oil is imported, a weaker rupee means more the import cost. Hence, as the US Dollar gains against the Rupee on the date of purchase, then the cost of crude oil also increases; if the Rupee gains against the US Dollar on the date of purchase, the cost of crude oil will also decrease.

Inventory: Apart from exchange rate and crude oil price, the rise and decline in the supply of fuel will also impact its price. A low supply leads to an increase in price and vice versa. As a practise, oil refining and marketing companies maintain crude oil inventory to the extent of up to 6 weeks. This also impacts the price of the fuel and things which are manufactured out of it.

Logistics: Petrol has to be transported to regions far from the depots across cities. Hence, the cost of logistics also impacts the price of crude. Typically, the price of petrol at retail outlets closer to the depots will be lower than those located farther from it. This is because the companies do not have to incur logistics cost for transportation to nearby locations.

Central Excise and VAT: Various taxes such as the Central Excise or VAT imposed by the State Government also impacts the petrol prices. The higher the rate of taxes, the higher will be the petrol prices and vice versa.

Impact of GST on Petrol Prices

Petrol and petroleum products are out of the purview of the GST. Therefore, as of now, the GST system has no impact on petrol prices in all the States. There is a widespread speculation over the inclusion of diesel and petrol under the GST regime in future. Experts predict that there could be a combination of GST and VAT on petrol products, which is a policy followed in other countries. However, the ultimate decision on this will be taken by the Central government in times to come.