Recent Changes in Diesel and Petrol Prices: All you should know

The usage of petrol and diesel is high in India as the demand for these two fuels has been increasing immensely. Various types of petroleum products, including diesel and petrol, are extracted from crude oil. India is heavily reliant on the import of crude oil and so, crude oil price is also included in the selling price. It is extremely important to understand the price changes that are interlinked with several aspects. Recently, there are some noticeable changes with respect to the price structure of diesel and petrol.

Price structure of Petrol and Diesel as of 1 October 2018

	Petrol	Diesel
Crude oil per barrel	$85.50	$85.50
Barrel of crude oil	159 litres	159 litres
Cost of crude oil per litre	Rs.38.97 per litre	Rs.38.97 per litre
OMC cost computation
OMC expenses (entry tax, freight, profit margin of OMC, refinery expenses)	Rs.3.82 per litre	Rs.7.25 per litre
Fuel cost (After refining)	Rs.42.79 per litre	Rs.46.22 per litre
Excise duty	Rs.19.48 per litre	Rs.15.33 per litre
Price charged to dealers prior imposing Value-added Tax	Rs.62.27 per litre	Rs.61.55 per litre
Dealer price for dealers	Rs.3.66 per litre	Rs.2.52 per litre
Fuel price before VAT	Rs.65.93 per litre	Rs.64.07 per litre
Value-added Tax (Varies within states	XXXX	XXXX

Excise duty on diesel and petrol

Petrol: Petrol is taxed by the Centre and the respective state government. The excise duty is centrally taxed and expressed always in terms of rupees. It was just Rs.9.20 on a litre of petrol in the month of November 2014. According to the official releases, it stood at Rs.21.48 per litre in August 2017. The central tax was Rs.19.48 per litre in the month of October 2018.

Diesel: The central tax on diesel per litre is lower compared to petrol since diesel is a subsidised fuel in India. The tax was charged at Rs.3.46 per litre in November. Because of the steady increase, it went up to Rs.17.33 per litre in August 2017. As the central tax on diesel was cut by Rs.2, it stood at Rs.15.33 in October 2018.

Components of Fuel Prices

• Central tax: As mentioned earlier, the central tax is a primary cost aspect that can be revised.
• Value-added Tax: VAT is something that changes from one state to another.  
• Commission: A fuel retailer will charge a certain amount of commission that shall also be included in the price.
• OMC expenses: As its name suggests, OMC expenses are the expenses incurred by oil marketing companies that include Bharat Petroleum, Indian Oil and Hindustan Petroleum.
• Crude oil cost: The cost of crude oil tends to change from time to time. For instance, if the cost of crude oil a barrel is Rs.6,200, the cost of a litre of crude oil shall be Rs.38.99.

Why do Fuel Prices Change?

All the cost components directly affect the pricing of diesel and petrol. For example, when the excise duty falls, the selling price falls and vice versa. When the VAT in a particular state falls, the selling price also falls and vice versa. Today, dynamic fuel pricing is used for setting rates and diesel and petrol. The revision has to happen on the basis of the price of unrefined oil per barrel and the INR/USD exchange rate. Diesel and petrol prices will change accordingly. For instance, if the dollar keeps appreciating against the domestic currency, diesel and petrol prices will start falling in the domestic market.

Recent Excise Duty Cut

The Centre recently has reduced the excise duty in response to an appeal made by the common public and the political parties. Fuel prices were revised accordingly by fuel companies. As the BJP-led governments reduced their VAT, the state-run oil enterprises adjusted the fuel prices respectively.