In recent days, the fuel prices hit an all-time high. In some cities, petrol prices have just crossed Rs. 90/liter and even diesel hit new records too. It is all because of depreciation in rupee against dollar and steady rise in crude oil prices. On top of that, the Indian government has raised the taxes many times. But, there is another reason which the people are not fully aware of.
For your information, it is not the petrol and diesel which import in India but the crude oil and the price we pay for the fuel is based mostly on import parity price. By doing this, the government and the oil companies make more money as prices go up and we ended up paying way more than we should be.
Why Fuel Prices Are Costlier In India? – Find out why?
- The very first indicating thing is we have more exports than imports. Means, country’s total imports in 2017-18 were worth Rs. 744 million; however, the total exports were Rs. 23,858 million.
- The price importers IPP (Import Parity Price) would pay not just the cost of the fuel but also insurance, customs duty, freight charges, and port charges on imported product.
- Ad Valorem tax which is an import duty tax on goods and services also the reason behind this rising in oil prices. Customs is an “ad valorem” tax. Whenever the customs duty on the products increase has to be paid to the refiners. It is not a specific duty which would remain constant irrespective of basic price. So, when the base price increases, the custom duty increases in the absolute terms. For example, customs duty is 2.5% of the imported price so for a 1000 rupee barrel, the duty on the barrel of petrol would be 250 rupees however for 2000 rupee it would be 5%. That explains why the companies actually in profit at a time of rising in raw materials.
- It is not just the refinery companies who are gaining from it but also the Government of India who also gained in terms of taxes in the last 3-4 years. The amount they collect as custom duty charges which goes up with the import price. But, that’s not the major earning source of the government. Not even close! The main earning source is the excise duty which was raised nine times in the last 3 years and cut only once. Duty on diesel rose to 11.33% from 2.96% and the duty on petrol rose to 9.48% from 2.7% in between November 2014 and October 2017. Apart from this, government gains from taxes on the profits of refiners and dividends from the profits of state-owned refiners.
Hope, this article helped you understand the reason behind the expensive petrol and diesel. If you have any query or would like to add something then doesn’t forget to mention in the comment section below.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.