How the price of petrol is calculated?

There is so much of ruckus going on due to the increase in petrol prices and Indian Rs is getting weaker against the dollar. So I thought to dig into the matter and see what cause petrol to rise and how much is the actual cost of the petrol.

The Pricing of fuel depends mainly on two factors:

  1. Price of the crude oil in the International Market
  2. The taxes levied by the Central and State government

India has no say on International Crude oil prices but they have control over the taxes imposed by the Indian Government.

The petrol rate becomes almost double when it reaches to the consumer from the refinery. It leaves the refinery at 39-40rs, then Excise Duty is levied by Central of 19.48rs, dealer commission is added 3-4rs and then state VAT is added which is 27 per cent in Delhi about 17rs. The complete breakage is given below for the better understanding.

piechart

In International Market, the pricing is set per Barrel. 1 Barrel = 159 litres of crude oil.

Let suppose the barrel rate is 70 dollar.

Dollar rate – 72rs

So 1 litre crude oil = (70*72)/159 = 31.70rs

After refining from the refineries cost = 39-40rs.

Excise duty by government = 19.48rs

Commission of Dealer – 3-4rs

State tax (VAT) – Delhi for instance is 27 percent = 17rs

Which all adds up to – 79-80rs.

So this way petrol is priced in India.

Central and states both need to cut some taxes, if states are concerned for the wellbeing of the people so instead of blaming the central can cut the VAT ( tax on petrol). But neither the centre nor the state is concerned. The petroleum products are the cash cow and no one is ready to cut it.

Cigarettes are injurious for health but they are not banned because of high revenue is collected in the form of taxes. Hukka, on the other hand, is banned as generating revenue from it for the government is quite difficult. Little off topic though.

The Earning from the taxes in the past few years has been tripled. Instead of passing the benefit to the consumer, taxes were increased. For instance, between 2010 and 2016, the Delhi government increased the VAT on petrol from 12.5 per cent to 27 per cent.

graph graph

 

Source:

https://www.indiatoday.in/india/story/fuel-price-hike-who-burnt-a-bigger-hole-in-your-pocket-upa-or-nda-1240727-2018-05-24

https://economictimes.indiatimes.com/industry/energy/oil-gas/government-rules-out-excise-duty-cut-as-petrol-diesel-prices-hit-fresh-high/articleshow/65672369.cms

https://www.thehindubusinessline.com/economy/policy/excise-duty-on-petrol-diesel-to-give-big-boost-to-centres-revenue-kitty/article22723716.ece