Petrol Price in India

To help you understand why the petrol prices change every day, here are the few factors that have a direct impact on its cost.

• Crude oil cost: This is one of the most important factors that has a direct impact on the petrol price in the Indian domestic market. Known as unrefined oil, crude oil is an international commodity and any change in its cost impacts the Indian fuel price. The cost of the crude oil is mainly increased due its demand and supply, international political relations and future supplies and reserves.

• Rise in demand: With an increase in the number of people owning private vehicles, the demand for the fuel has increased, contributing towards the petrol price hike. Supply and demand ratio: Petrol is produced by processing crude oil, the cost of which affects the fuel price in India. Oil refinery companies in India face problem to meet the rising demand of petrol as the cost of crude oil is rising, thus resulting in less supply of petrol.

• Taxes: Petrol prices in India change in accordance with the changes in government policies that impose tax on fuels. To get marginal returns and recover the losses, Indian oil companies change their rate depending on the changing rate of taxes.

• Rupee and dollar: This is one of the very important factors having a huge impact on petrol price in India. Oil imported in India is traded in dollars. So, when the dollar strengthens against the Indian rupee, the buying cost goes high, thus impacting the cost of petrol.

• Refinery consumption ratio : The imported crude oil is sent to refineries for further processing. A low refinery ratio leads to lower quantity of petrol available for sale, thus increasing the cost of petrol.

The below table gives you the list of effective VAT imposed on petrol in different states in India as on September, 2018.

GST is the Goods and Service Tax Act that came into effect in the country in July 2017. Petrol, and its related products, is a commodity that has been kept out of the GST regime. Currently, petroleum products such as crude oil, natural gas, LPG, diesel and petrol are not under the ambit of GST and are subject to central excise duty and state specific VAT. The addition of these taxes seems to exceed the cost of petrol and diesel in the country. The levy of central and excise duty increases the cost of petrol.

The below chart explains the tax structure levied on petrol in India

Let’s consider the below example to understand what happens if petrol comes under the ambit of GST.

As on September 2018 in Delhi, an individual has to pay Rs 70.52 to purchase a litre of petrol. If you minus the excise duty (Rs. 21.48) charged on per litre of petrol by the centre, also the 27% VAT charged by the state government (calculated to be Rs 14.96), dealers commission (Rs 3.24), the actual cost of petrol comes to Rs. 30.85 per litre. For example, as of September 2018 in Delhi, an individual has to pay Rs. 70.52 for purchasing 1 litre of petrol. If the excise duty i.e. Rs. 21.48 per litre is taken out and 27% VAT i.e. Rs. 14.96 on price of the petrol, dealer’s commission i.e. Rs.3. 24 is waived off, then the actual cost of petrol comes around to be Rs. 30.85 per litre.

So what happens if petrol comes under GST ambit?

If we assume that the Indian Government brings petrol prices under 12 % GST bracket, then petrol price could come down to Rs 38.1 in Delhi At 18 % GST bracket, petrol price will be Rs. 40.05 per litre And at 28% GST bracket, petrol will cost Rs. 43.44 a litre in Delhi.

Note: The above calculations are assumptions based on current petrol price in Delhi i.e. Rs. 70-71 per litre in September, 2018.