Fuel price hiked for third straight day: Petrol rises 54 paise, diesel dearer by 58 paise in Delhi
Petrol was costlier by 54 paise a litre and diesel by 58 paise a litre on Tuesday, the third consecutive price hike after state-run fuel retailers ended an 82-day freeze on daily rate revision on Sunday.
Consumer prices of petrol have jumped by Rs 1.74 a litre in Delhi since Sunday and diesel by Rs 1.78 a litre because of a surge in international oil prices after the producers’ cartel decided to extend record output cuts by a month till the end of July.
Brent crude was trading at $40.82 a barrel on Tuesday, 111% higher than its low of $19.33 on April 21. However, retail prices of fuel didn’t fall in India in line with the lower prices of crude because the government hiked levies and kept prices more or less the same.
Retail prices of petrol and diesel were first raised by 60 paise a litre each on Sunday, followed by similar hikes on Monday. Petrol is now sold in Delhi at Rs 73 a litre and diesel at Rs 71.17 a litre, according to Indian Oil Corporation (IOC), the country’s largest petroleum refiner and fuel retailer.
Prices of auto fuels differ across cities because of variations in state and local levies. Daily price revisions were suspended and retail rates were frozen on March 16.
Executives of public sector oil marketing companies – IOC, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL) – said on condition of anonymity this was done under some tacit, but prudent, directive by the government, which raised excise duty on fuel to benefit from the lower prices.
“Due to the highly volatile nature of international oil prices, it was not always advisable to allow a complete free-fall of retail rates because, in case of a sudden spike [in global oil prices], which was inevitable, the reverse would have been more burdensome for the consumer,” one executive said.
The oil marketing companies last revised petrol and diesel prices at Rs 69.59 a litre and Rs 62.29 a litre, respectively, when the international benchmark, the Brent crude, was at $30.03 a barrel. International oil prices further dropped to $19.33 a barrel on April 21 because of slack demand, which was due to lockdown of major economies to contain the spread of the Coronavirus and global oil storage tanks being full.
Taking advantage of subdued global oil prices, the Union government raised excise duties on petrol and diesel twice – first by Rs 3 a litre each, and later by Rs 10 a litre on petrol and Rs 13 on diesel. A Re 1 per litre hike in excuse duty meant an additional Rs 14,500 crore in revenues for the exchequer.
States have also raised value-added tax (VAT) on petrol and diesel since mid-March. The Delhi government raised VAT on petrol and diesel to 30% last month. Consequently, retail prices of petrol in the city jumped by Rs 1.67 a litre and diesel by Rs 7.10 a litre.
Earlier, the state levies on petrol and diesel were 27% and 16.75%, respectively. Diesel in Delhi also attracts an additional air ambience charge of Rs 250 a kilolitre.
The extra revenue has come in handy at a time when the economy has been roiled by the Covid-19 pandemic and the lockdown was imposed to slow its spread.
Queries sent to the petroleum ministry, IOC, BPCL and HPCL elicited no response. The three state-run firms enjoy a monopoly in fuel trade with more than 90% market share. While the government deregulated the pricing of petrol on June 26, 2010 and diesel on October 19, 2014, it has tacit controls over the fuel retail business though the three public sector companies.
Abhishek Jain, tax partner at consultancy firm EY India, said: “When crude prices fell recently, similar corresponding reduction was not witnessed mostly on account of increased taxes by the Centre and state through excise and VAT. With increase in crude prices and reintroduction of dynamic pricing, possible surge in prices could be controlled through downward tweaking of tax rates on petrol (both excise and VAT).”
Experts said consumers must brace for more price shocks as international oil prices are expected to increase due to supply cuts by oil producers’ cartel and rising demand, as many countries are resuming economic activities after prolonged lockdowns.
A Bloomberg report on the oil producers’ agreement to continue an output cut quoted consultant Wood Mackenzie Ltd as saying that Brent crude prices could rise to as much as $50 a barrel from Friday’s closing price of $42.30. In intra-day trade on Monday, Brent crude jumped to $42.99 a barrel.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, particularly Russia (OPEC+) on Saturday agreed to extend record oil production cuts of 9.77 million barrels a day for a month until July-end. The output cut is almost equivalent to 10% of total global oil supplies. Earlier, they proposed to reduce the output cut to 7.7 million bpd from July and maintain the level till December.