Number theory: Fuel prices continue to rise, relief unlikely soon
With no signals from the Union government and the states that they will cut taxes on fuel, and a continuous rise in international petroleum prices, relief on this front is unlikely in the near future.
Petrol and diesel prices continue to rise in India, and Chennai is likely to become the second metropolitan city where petrol prices will cross the psychological barrier of ₹100 per litre soon. With no signals from the Union government and the states that they will cut taxes on fuel, and a continuous rise in international petroleum prices, relief on this front is unlikely in the near future. Here are five charts that describe the situation.
A significant increase in prices compared to last year
With the exception of diesel prices in Delhi, petrol-diesel prices have increased by at least 20% in the past year. The period from May 4 onwards has seen a particularly sharp spike in fuel prices after they did not increase for 65 days after February 27 (when campaigning was going on for the latest round of assembly elections).
Petrol selling at ₹100 or higher in 332 districts
Because fuel prices are a function of state taxes and freight charges, they vary across the country. An HT analysis of petrol-diesel price data from the Indian Oil website shows that petrol was selling at ₹100 or more per litre on June 28 in 16,885 out of the 32,557 locations for which data is available. The modal price was ₹100 or more per litre in 332 out of 730 districts. As of now, there are 13 states and Union Territories where petrol is selling at ₹100 per litre or more (in terms of average of modal price across districts). This was true only for Madhya Pradesh on May 12, a week after petrol prices started increasing. The gap between the lowest ( ₹82.5 per litre in Andaman and Nicobar Islands) and highest ( ₹107.7 in Madhya Pradesh) prices of petrol in the country was ₹25.1 per litre on June 28. This gap was ₹23.7 per litre on May 12.
Taxes are the major reason for high petrol-diesel prices
Of the ₹96.66 per litre consumers were paying for petrol on June 16, 2021 (the latest available data in terms of split) in Delhi, ₹41.45 was the base price plus freight charges plus dealer commission; ₹32.9, the union excise duty; and ₹22.31 was on account of state value added taxes. For diesel, the non-tax component accounted for ₹42.82 of the retail price of ₹87.41 on June 16 in Delhi.
Meanwhile, crude prices continue to rise
While taxes are the major factor behind high fuel prices, a continuous rise in crude prices has been pushing them even higher. The price of India’s crude oil basket (COB) fell sharply when the pandemic first hit. It was $65.5 per barrel in December 2019 and fell to reach $19.9 in April 2020. Prices started increasing thereafter, first gradually and then at a much faster rate. COB reached $49.8 by December 2020. By May 2021, the COB price was $67 per barrel. While the monthly average price for June 2021 has not been released yet, the COB price was $74.18 per barrel on June 25, according to data from the ministry of petroleum.
Government’s tax windfall will rise as consumption increases due to easing of restrictions
The imposition of lockdown and related mobility restrictions led to a fall in consumption of petrol and diesel during the first lockdown. Consumption also fell, although marginally, when restrictions were re-imposed during the second wave of infections. With restrictions being eased and mobility restored, the consumption of petrol and diesel is likely to increase once again. This means higher taxes for the government and a higher inflation burden on people.