Introduction to Fuel Pricing in India
Petrol is an essential commodity in our day-to-day life. We use it mainly for the purpose of transportation. The price, which is charged at petrol pumps, is the retail price of petrol for consumers. Have you ever questioned yourself that how petrol rates in India are computed? Which are the influencers of the cost of petrol? Whether or not petrol has been covered under the regime of GST? These are very important questions from the stance of petrol users someone like you. Let’s get into the discussion.
Daily Revision of Petrol and Diesel Prices in India (Dynamic Fuel Pricing)
How are petrol and diesel prices in India determined today? We have a new fuel pricing mechanism in place called dynamic fuel pricing, which is also called daily revision of fuel rates. The new pricing system was introduced in India on 16th June 2017 after conducting a long 40-day trial in five cities - Chandigarh, Udaipur, Jamshedpur, Puducherry, Vishakhapatnam.
Under this system, fuel rates are revised on a daily basis considering global crude oil rates and the rate of currency conversion. The system is in practice across 58,000 petrol bunks in India. The system brings transparency and addresses complexities involved in the previous fortnightly-based revision. It lets fuel users pay market-determined prices despite the impact.
Petrol and diesel rates are revised at 06:00 a.m. every day.
There are two categories of petrol bunks:
- Automated, which automatically modify rates with no human intervention and
- Non-automated, which manually revise. Only 20% out of 58,000 petrol bunks are automated and the rest are non-automated. The revised rates shall be displayed at bunks for the public.
How to Check Petrol Prices in India every day?
State-owned oil marketing entities account for at least 90% of retail fuel stations in India. Renowned oil brands such as Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL), and Indian Oil have strategically designed a few initiatives that help consumers spot the latest rates.
Here is How You Can Track Petrol Prices Regularly:
|SMS service||Type: HPPRICE
|Online Service||Visit www.hindustanpetroleum.com and then go to “Pump Locator”||Visit www.bharatpetroleum.in and then go to “Pump Locator”||Visit www.iocl.com and then go to “Pump Locator”|
Trends in Petrol Prices in Delhi over the Last five Months
Between April and August 2017, the highest petrol price in Delhi was Rs. 69.15 on 4th August 2017 and the lowest price was Rs.62.13 for the same period. Interestingly, for the month of April, we can see neither a decreasing trend nor an upward trend. For May and June, petrol rates in the city have slashed by 4.20% and 6.02% respectively. For July and August, rates have accelerated by 3.33% and 5.42% respectively. Between April and August, prices have raised by 4.75%. The current petrol rate in Delhi, i.e., as on 30th September 2017 is Rs.70.66.
New Delhi, the capital city of India, has witnessed an 8% price hike in petrol since the implementation of dynamic fuel pricing. The retail selling price, the final price, of petrol in the city has boosted to Rs.70.41 from Rs.65.23 as on 17th June 2017. The upsurge can be accredited to a 14% hike in overseas petrol and a 40% up in dealer’s commission, i.e., from Rs.2.55 to Rs.3.57 per litre.
Trends in Petrol Prices in Mumbai over the last five months
Between April and August, the lowest petrol price in Mumbai was Rs. Rs.73.03 on 14th July 2017 and the highest price for the same period was Rs.78.28 on the closing date of August. For August and July, petrol rates have increased by 4.75% and 0.38% respectively. For May and June, rates have decayed by 3.65% and 5.27% respectively. As we can see, rates for the month of April, have remained unchanged. In a nutshell, the cost of petrol in Mumbai over the last five months has gone up by 7.51%. Petrol rate today, i.e., on 30th September 2017 in the city is Rs.79.77.
Trends in Petrol Prices in Bangalore over the last five months
Petrol prices in Bangalore for the month of August have raised by 5.47% and for the month of July by 3.33%. Prices have fallen by 5.89% and 4.22% for June and May respectively. For the month of April, rates have neither increased nor decreased. Between April and August, petrol was priced highest at Rs.72.83 on the opening day of May. The lowest rate for the entire period was Rs. 64.21 on 2nd July 2017. As we can see from the graph, there has been a downward trend in petrol prices in Bangalore since May. Petrol rate today, i.e., on 30th September 2017 in the city is Rs.71.77 a litre.
Impact of GST on Oil and Natural Gas Industry
The Goods and Services Tax (GST) is a unified indirect tax platform that was implemented in July 2017.As on today, the oil and natural gas industry has been kept outside the GST regime. What would have been the impact on the industry if GST was imposed?
The cost of compliance would have doubled as the industry had to comply with the present and GST tax structures. The implementation of GST would have resulted in non-creditable tax, which means the participants of the industry had to pay GST upon the purchase of plant and machinery. They would not have been able to obtain credit on saleable products. Moreover, upstream corporations would have been adversely affected by a hike in the tax rate from 15% to 18%.
With respect to the segment of gas utilities, gas marketers would have faced complexities since they had to remit GST on transmission rates. GST excludes five petroleum derivatives - natural gas, high-speed diesel, crude oil, motor spirit and aviation turbine fuel while it covers other commodities such as kerosene, LPG, fuel oil, naphtha.
GST Impact on Petrol Prices in India
Let’s take a look at how much is taxed on petrol.
|Fuel cost (after freight, margin of OMCs, refining expenses)||Rs.27.51 a litre|
|The center’s excise duty||Rs.21.48 a litre|
|Pump dealer’s commission||Rs.2.5 a litre|
|Gross rate before Value Added Tax||Rs.51.48 a litre|
|27% VAT on gross price (Delhi)||Rs.13.9 a litre|
|Pollution cess at 25p||Rs.0.25 a litre|
|Retail price of petrol (RSP)||Rs.65.63 a litre|
32% of the retail price of petrol goes to the central government and 21.5% to the state. The central government gets Rs.21.48 and the state Rs. 14.15 if the RSP is 65.63. This is the current scenario.
What is the impact of GST on petrol prices in India? Let’s take an example of the capital city, Delhi.
A litre of petrol costs Rs.70.56 in Delhi as on 28th September 2017. It will fall to Rs.30.85 a litre when we take out Rs.21.48 paid as the excise duty a litre, the state government’s 27% VAT, Rs.3.24 remitted as commission to dealers. If GST is imposed on petrol, how much do we pay?
Here goes the calculation:
· In case 12% GST on petrol, a litre of petrol costs Rs.38.10.
· In case 18% GST on petrol, the cost of petrol per litre is Rs.40.05.
· In case 28% GST, which is the highest rate fixed till date, the cost in the city is Rs. 43.44 per litre.
Petrol prices in India would have cheaper for consumers, but the revenue source for both the governments would have been adversely affected. Let’s wait till the next turn.
It is important to understand the participants of the oil and natural gas industry to understand how petrol prices in India are determined. They include:
- Oil production and exploration corporations: These corporations are liable for producing oil in its crude form. The major participants of this segment include Crain India, Reliance Industries, Oil and Natural Gas Corporation (ONGC), Oil India. Only 25% of the country’s oil requirements is met through these companies and the rest through importing.
- Oil Marketing Corporations: Oil marketing companies, also called refineries, manage everything from the stage of crude oil till the delivery of saleable fuel to dealers. This segment consists both public and private sector companies such as Reliance Industries, Essar, Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Private Corporate.
- Dealers: Owners of petrol bunks are called dealers who can be individuals or business entities. They sell petrol to end customers after adding their margins and local taxes.
Components of Petrol Prices in India
A litre of petrol in the national capital costs you Rs.70.56 at the moment. The central excise duty is Rs.21.48 a litre as on today? Why are we paying so much then? How is the RSP computed? The computation of RSP is based a few considerations, which are:
1.Cost of crude oil plus cost and freight charges
The cost of crude oil is the biggest component of the RSP. Oil manufacturing companies pay crude oil prices in addition to the cost and freight charges to buy oil from overseas companies. India is one among the biggest importers of crude oil.
2.Refinery transfer price (RTP)
Refinery transfer price is the cost incurred by OMCs to convert crude oil into refined petrol. In other words, RTP is a fee charged by refineries to OMCs to convert oil into refined petrol.
3.OMCs profit margin
OMCs retain the possession of oil until it is refined and then they sell refined petrol to local dealers after adding a profit margin.
4.Central and state taxes
Tax on petrol is imposed by the state and the central. The central excise duty is the same across the nation while the component of VAT varies within states.
5. Dealer commission
Local dealers or petrol bunk owners sell petrol to end customers after adding their commission per litre of petrol. Dealer commission may slightly vary.
All the aforementioned components get added to the final price. The variable components of petrol prices in India are transportation costs and the state VAT.
Breakup of Petrol Prices in India
The INR has strengthened against the USD recently. The crude oil price floats around $48 at present. The cost of one barrel, which is equivalent to 159 litres, is Rs.3210 that means a litre of oil costs you Rs.20.19. Crude oil prices are also marked to market dynamics. With this information, let’s now take a closer glimpse at the breakup of petrol prices in India as on 24th August 2017.
|The cost of crude oil with freight||Rs.3,210 a barrel of 159 litres|
|The cost of crude a litre||Rs.20.19|
|OMC cost computation|
|Refinery and processing expenses||Rs.6.03 a litre|
|Freight, transportation, OMC margin||Rs.3.31 a litre|
|Fuel cost after refining||Rs.29.53 a litre (52% of RSP)|
|The central excise duty on petrol||Rs.21.48 a litre (25% of RSP)|
|Dealer price before VAT||Rs.51.01 a litre|
|Dealer retail price computation|
|Dealer commission||Rs.3.23 a litre (2% of RSP)|
|VAT 27% plus 25p pollution cess||Rs.14.64 a litre (17% of RSP)|
|Retail selling price of petrol in Delhi||Rs.68.88 a litre|
This is how the retail selling price of petrol is computed in India.
VAT on Petrol Prices in India
The following table gives you an idea about effective rates of VAT imposed on petrol by Indian states as on 1st September 2017. The data has been released by Petrol Planning and Analysis Cell (PPAC).
|State||VAT on petrol||State||VAT on petrol|
|Andhra Pradesh||38.82||Arunachal Pradesh||20.00|
|Madhya Pradesh||38.79||Jammu & Kashmir||29.53|
|Uttar Pradesh||32.45||West Bengal||26.85|
|Also Know: Diesel Price In India|
Factors Impacting Petrol Prices in India
The cost of petrol in India is impacted by the following factors:
1. Crude oil prices
The pricing of crude oil is often what impacts petrol rates the most. Crude oil, also called unrefined oil, is an international commodity. The market for which is dynamic in nature. The most common influencers of the cost of oil include:
- Demand and supply: The law of demand applies even for petrol prices, which increase when there is an increased demand for oil and decrease if there is a decreased demand.
- Future supplies and reserves: An inadequate amount of oil reserves increases the oil cost that in turn impacts fuel rates.
- Political events: Crude oil pricing is affected by wars, natural calamities, new government regulations.
- Demand from leading economies: The oil price boosts when there is a larger demand from leading economies of the world.
As discussed earlier, petrol is taxed by centrally and by the state. Petrol prices in India will change in proportion to changes in the central excise duty and the state VAT.
3. Refinery Consumption Ratio
This is a very important consideration. Crude oil when imported by OMCs is sent to refineries for further processing. A lower refinery consumption ratio leads to a lower quantity of refined petrol for sale and, thus increases the cost of petrol.
4. Currency Conversion Rate
The USD is the base currency to buy raw oil. If the USD strengthens against the INR, the buying cost of oil shall go up; when it weakens, the cost will be declined. Ups and downs in oil impact the buying cost of petrol as a result.
Determinants of Bunk Prices
1. Seasonal condition
Seasonal conditions in oil producing countries have a direct impact on extracting raw oil. Oil manufacturing companies cannot have the same productivity throughout all seasons. A drop in productivity gives a boost to the buying cost of raw oil at global markets, thereby affects petrol prices at bunks.
2. Weather reports
Weather reports differ from seasonal conditions. Crude oil once purchased by OMCs is transported to refineries. When bad weather reports interrupt transportation activities, we are left with an inadequate quantum of refined petrol for consumption.
3.Restricted refining capabilities
There exists a dearth of refined petrol when refineries limit their refining capabilities due to high running expenses. So, usable oil is short in supply, leading to a price hike at bunks.
4.Devaluation of USD
As we know, crude oil is traded in US dollars. Oil manufacturing companies tend to tweak prices if the USD weakens against the major currencies of the world.
LPG, Domestic LPG, CNG, Kerosene
- Liquified Petroleum Gas (LPG) is a composition of commercial propane and commercial butane. It can be extremely dangerous. The way it is utilised, shifted, and bottled should be paid extreme importance. LPG, under moderate pressures, can be readily liquified.
- Domestic LPG is a composition of hydrocarbons that are vaporous at usual temperature. Hydrocarbons can be stockpiled in cylinders and liquified at temperate pressure. Domestic LPG is a gas with no colors and not dangerous. The gas connection at homes should be done with utmost care.
- Compressed natural gas (CNG), a fuel, can be utilised in lieu of propone, gasoline, diesel fuel. CNG ignition foodstuffs lesser detrimental gases than other fuels. In the event of a spill, it is harmless compared to other fuels. It can be discovered above oil repositories.
- Kerosene, also called paraffin, is a combustible liquid and utilised as a fuel for power, heat, light. It is usually a multipurpose fuel and can be used effectively, carefully in order to get incredible results. Kerosene is famous among people for cost-effectiveness.
*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.