Diesel Price in Madhya Pradesh
Located in the heart of India, Madhya Pradesh is the second largest state in India. Diesel price in the state, which is a place for major cities such as Bhopal, Indore, Jabalpur, Ujjain, Gwalior, etc., is relatively high compared to other states because of various pricing components involved. In the month of April 2018, highest diesel price was recorded at Rs.80.18 while the lowest price was Rs.79.27.
The fluctuation in diesel price is due to various national and international components that make-up diesel price. Having a basic idea about all such factors would help understand how diesel is priced in Madhya Pradesh and also in rest of the country.
Listed below are the various elements involved in diesel pricing in India along with the factors that are contributing to fluctuating diesel prices.
Components Involved in Diesel Pricing in Madhya Pradesh
Diesel price in Madhya Pradesh, just like in any other Indian state, is made up of various domestic and international elements. All such elements are related to fuel extraction, refining, transportation and marketing and hence play a key role in bringing diesel from beneath the ground to the retail fuel stations.
Crude oil exploration and extraction is typically done in other countries where fuel reserves are high. Though India also has some crude oil reserves, the production from all such reserves is not sufficient to cater the demand. Therefore, India imports over 70% of its crude oil requirements from other countries. Hence, the price at which the countries sell the crude oil to Indian oil companies becomes the major component of diesel price in Madhya Pradesh.
The crude oil purchased by Indian companies is called Indian crude basket and the price of the basket varies with respect to international crude oil prices. Crude oil prices in the global market are dependent on various components including supply and demand, weather conditions, political stability, etc., in the oil producing nations. Whenever there is a sudden change in any of the factors listed about crude oil price will get affected and hence the price of Indian crude basket.
Logistics charges also play a key role in diesel pricing in India. The fuel is transported from overseas location to Indian ports to oil refineries in the country and from there to respective retail diesel stations. Hence, all the charges involved in shipping the diesel through various means including ocean, rail or road thus factor in diesel pricing.
Finally, the state and central government taxes, which form a major chunk in the diesel price, are another determining factors for diesel price in India. While the central government charges excise duty on diesel, the state governments charge value added tax (VAT) on every litre of diesel sold in their respective states.
Currently, the central government charges an excise duty of Rs.15.33 per litre of diesel. The excise tax remains same across all the Indian states and so in Madhya Pradesh.
Madhya Pradesh government collect VAT of 23.22% per litre of diesel which is second highest in the country. The reason why diesel rate in the state often touches Rs.80 is mainly because of high tax rates imposed on diesel. If there is a downward revision in the tax rates, the price of diesel in Madhya Pradesh may come down.
Factors Affecting Diesel Price in Madhya Pradesh
Once you understood the various elements that contribute to diesel pricing in India, it now becomes easy to understand the factors that affect the price on a daily basis.
Of the various components involved in diesel pricing, international crude oil price and currency exchange rate are the two factors that affect the price on a daily basis. Let’s see how and why they show a constant impact.
International crude oil price, as discussed earlier, is dependent on various other factors including demand and supply metrics, production output, weather conditions, political stability, etc., in the oil producing nations. Shortage in the supply of crude oil increases the price of crude oil whereas an increase in supply leads to decrease in the price. Further, the inventory maintained by Indian oil refining and marketing companies also influences the price of crude oil.
Since India follows dynamic fuel pricing mechanism to calculate diesel price, the domestic base price of diesel will be aligned to international crude oil price on a daily basis. Thus even a slightest change in international crude oil price would impact the diesel price in India.
Secondly, as Indian oil companies import crude oil quoted in US dollars, rupee to dollar exchange rate, which again changes dynamically, is another major factor that affects diesel rate in Madhya Pradesh on a daily basis.
Besides the aforementioned factors, any change in transportation charges, diesel dealer’s commission, state and central government taxes, profit margins of oil marketing companies, would affect diesel price in Madhya Pradesh as and when they are revised.
Daily Revision of Diesel Price in Madhya Pradesh
Ever since the dynamic pricing model was implemented in India, diesel price in Madhya Pradesh and in rest of Indian states, are being updated on a daily basis. Dynamic pricing model is a popular pricing mechanism followed in most advanced countries to compute fuel prices. The pricing model considers the elements that dynamically change on a daily basis like the Indian crude basket price and currency exchange rate and computes the diesel price in India.
By implementing dynamic fuel pricing, the government of India aims to pass even the slightest change in international oil prices to the end customer and the diesel dealers immediately. Further, the move brings more transparency in diesel pricing and is expected to reduce the impact of fluctuating oil prices on the working capital of dealers and companies.
*Disclaimer: BankBazaar makes no guarantee or warranty on the accuracy of the data provided on this page, the prevailing prices are susceptible to change and provided on an as-is basis. We accept no liability for any loss arising from the use of the data contained on this website.