Petrol and diesel prices in India remain unchanged for the sixth straight month after they hit an all-time high in April 2022. As the fuel rates remain table in the country, we bring you some factors that affect petrol, diesel prices in India.
Central excise duty
Excise duty on petrol and diesel is levied by the central government. Notably, the central excise duty is a predefined amount and not a percentage. Hence, the duty does not fluctuate with the price of fuels. In recent years, the Indian government has increased excise duty, the amount of which remains constant regardless of whether the price of crude oil goes up or down.
Crude oil price
Crude oil is a commodity in the international market. Changes in the price of crude oil directly affect the price of petrol and diesel in India. When the demand and supply of crude oil changes, prices change. Moreover, international political relations and future reserves and supplies also directly impacts the crude oil price.
Price charged to dealers
The Oil Marketing Companies (OMCs) purchase and distribute crude oil. The price that OMCs charge to the dealers is a determining factor in the price of fossil fuels. This price is also based on various factors including freight cost, refining charges, etc.
Commission for dealers
The OMCs pay a commission to fuel distributors. This commission includes the earnings, cost and profit of the owners. This is one of the components which make up the fuel price.
Demand and supply
As the number of two- and four-wheelers on Indian roads increases, so does the demand for petrol and diesel. The supply cannot always be met since the oil refinery companies in India have to buy crude oil from the international market to process it into petrol and diesel. According to the laws of economics, when supply is lower and demand is higher, the price of both fuel increases.
Government taxes
The Indian government charges a tax on petrol and diesel. There are certain guidelines based on which the Center could modify the tax structure. The price of fuel also changes due to these taxes.
Sales Tax or Value Added Tax (VAT)
The respective state governments collect the Sales Tax or VAT. It is calculated taking into account other factors such as the central excise duty, the commission of the dealers, etc.
Quantity of fuel
The imported crude oil is sent to Indian refineries for processing. If the number of refineries is less, then the quantity of petrol or diesel available for sale will also be less. It would also mean less supply, which in turn increases the price of fuel.
INR Vs USD
The value of the rupee against the US dollar is one of the main factors responsible for the change in the prices of petrol and diesel in India. The transaction is carried out in dollars in order to buy crude from the international market. Therefore, the strength of the USD against the INR is a direct factor. If the US dollar is stronger, the cost of buying crude oil will be higher. This means that the price of finished products will also be up.
