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Why Fuel Prices are High in India. Petrol and Diesel Price Hike Reasons

Why Fuel Prices are High in India. Petrol and Diesel Price Hike Reasons

Petrol and Diesel Prices are on its High in India. Top 4 Reasons demystified for High Fuel Prices in India due to Excise, VAT, Refinery Margins, Dealer Commission impacting Indian Consumer


Reason for High Fuel Prices - Petrol & Diesel Prices

Petrol has breached in Rs 70 per Litre mark in Delhi and almost touching in Rs 80 per Litre in Mumbai. For People of Mumbai - Petrol Prices surpassing all previous highs

Diesel Price in Delhi is at Rs 58.6 per Litre, while in all other 3 Metro Cities - Mumbai, Chennai, Kolkata is above Rs 60 per Litre.

Despite of Developments

» Rupee Gaining Stronger against Dollar at its 2 year highs of Rs 63.9 against Dollar - down from its peak of Rs 69/$

» Crude Oil also at sub 50$ per Barrel - which is what Historical average, down from its peak of 147$/barrel

Wondering why are Fuel Prices so high in India - where in Petrol Prices are inching to mark new record of highs in Maharashtra and also are relatively very high in Other Cities - despite Crude Oil at a much lower level.

So much so - that Government has stopped 15 days Fortnight Price revision and now Fuel Prices are revised daily since 3rd July with Petrol Prices have silently been increased day by day and is near its peak highs in many Cities.

Wondering - what is are the Reasons for High Fuel Prices in India

1. Higher Excise Duty: Excise Duty on Petrol has increased by more than 120% and on Diesel by more than 400% in last 3 Years. Although the hike was done from November 2014 till December 2015. But this was one of the major reasons for ensuring that Fuel Prices remains high

Below is the quantum of Excise Duty

  Tax in November 2014 Tax in September 2017
Excise  Duty on Petrol Rs 9.20 per Litre Rs 21.48 per Litre
Excise  Duty on Diesel Rs 3.46 per Litre Rs 17.33 per Litre

2. Higher VAT Duty: GST Framework does not apply on Petroleum Products. Unsure why ? But States charges a high VAT Duty on Fuel Prices. VAT is imposed on Gross Price inclusive of Excise. Means Tax on Tax. While some states like Uttar Pradesh charges a Fixed VAT say Rs 9.4 per Litre, some states like Maharashtra charges in highest VAT+Cess – combined to be 45% on Petrol. MP, Rajasthan, Karnataka also has 30%+ VAT on Petrol. In Delhi VAT Duty is 27% on Petrol

Diesel although has some relaxation on VAT (as against Petrol) but on standalone basis has average VAT of 20% to 25% in most of the States. In Delhi – although its one among lowest at 16.75%+ 25 paise cess. 

In Last 3 Years - VAT Duty is also been hiked by most of the states contributing to high Fuel Prices

3. Hike in Refinery and OEM Costing: The Refineries and OEM almost make up to Rs 9 per Litre as cost of processing, transportation, margins etc. This is increased considerably from Rs 6.8 per Litre to Rs 9 per Litre making it  more than 30% hike in same in last 1 year

4. Increase in Petrol Pump Commission – Although Marginal but an increase in Petrol Pump Commissions from rs 2.42 per Litre (Petrol) / Rs 1.54 per Litre (Diesel) has increased to Rs 3.23 per Litre (Petrol) / Rs 2.17 per Litre (Diesel) in last 1 year. Although the amount in rupee terms is lesser, but in percentage terms – Commissions on selling Petrol and Diesel increased by more than 35% in last 1 year

Overall End Result: All this has Led to ensure that Fuel Prices remains High.

Do you know that Crude Oil Cost once processed and refined and converted to Final Petrol and Diesel along with even Transported to Fuel Stations - costs not even Rs 30 per Litre. Rest all are Taxes (except some small Dealer Commissions)

As in September 2017 - an Indian Consumer looking to fill Petrol and Diesel is paying up approximate Taxes

» Petrol - Rs 36 per Litre as Taxes in Delhi. Rs 46 per Litre as Taxes in Mumbai 

» Diesel - Rs 27 per Litre as Taxes in Delhi. Rs 30 per Litre as Taxes in Mumbai 

This is close to 55% in Petrol and around 45% in Diesel - which is one among highest in world

This all has led to High Fuel Prices. Hopefully - by now you would come to know the reason why Fuel Prices are high in India. In case you seek detailed Breakup of Petrol and Diesel Prices - refer on Fuel Price Calculation Sheet

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Sunday, 24 September 2017

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