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  • Hike of the Petrol and Diesel Price in India.

    Want to the reasons behind the increase of prices of oil and diesel? Looking out for details here and its impact on POL? Find suggestions from ISC experts on this page.

    We know that Govt. subsidy has been withdrawn on POL by our govt. But at that time the price was diesel Rs. 63.00 per ltr. and petrol was Rs. 69.86 per ltr. Now petrol and diesel price have increased significantly . What is the reason behind it? Can you tell the price determination system for these? What are the impact of price hike on POL?
  • Answers

    4 Answers found.
  • The price of petrol and diesel in India is determined by a formula called trade parity price (TPP). About 80 per cent of petrol and diesel is imported into India. 20% is exported. Hence the prices are determined based on prices of these fuels in the international market.
    The TPP will be determined in dollars and then it is converted to rupees. Then other costs and margins of the oil companies, dealer commission and taxes will be attended. A 'daily pricing' mechanism' based on a 15-day rolling average international rate is introduced from mid-June 2017. Based on the value of rupee against the dollar will also have a say on the cost of these products.
    The main cost of these products comes in the form of taxes. There is no GST for these products. The governments will be taxes. The taxes by the central government will be common all over the country The taxes by State governments will be different from one State to the other. That is why the price will vary from one state to the other state. Even though oil prices start rising, the taxes were not reduced. Fuel prices increased, The customer has to pay that. The taxes now are about 60 per cent of the fuels' price.

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  • Let us understand the pricing mechanism of the government in relation to petroleum products. The price of petrol and diesel in India is not dependant upon the actual costs rather it it is incurred by our existing refineries such as Indian Oil, HPCL and BPCL with the resourcing of crude crude oils, refining and the marketing strategies. The government has adopted a new regime for regulating the price of petroleum products as TPP.
    Around 80 percent of petrol and diesel is imported in India where as the extent of export of these products is to the level of 20 percent.
    Hence the prices of petrol and diesel are influenced with the International Petrol and Diesel Prices. Again TPP in terms of dollars is finally converted to Rupees. The weakening of Rupees as against the Dollars is one of the factors of the price spiral of the petroleum products. Centre often raises excise duty on petrol and diesel but these taxes are not being rolled back upon the fall of the prices in the International Level.
    If the prices of the petroleum products are not properly regulated, it would cause the spiral of the entire essential commodities. Hence we need to maintain a prudent approach in the price mechanism of petroleum products.

  • For long the price of petrol and diesel were controlled by the central government. The government was absorbing the increase of price in the international market. The deficit was compensated from the general budget. During those times there were only a few public sector oil companies which meant the government. So it was a convenient arrangement.

    But after the eighties and nineties, the number of vehicles and other uses of oil and its derivatives increased in high geometric proportions. As India was importing almost all f its oil requirement, the import bills became huge and our foreign exchange deficit became too much. Though government tried to bridge the gap by incentivising exports that did not yield much result.

    It was during the same time that private players were also allowed in oil sector. To sell oil under controlled prices, they wanted compensation from the government. The government found that the 'oil pool' account was not sufficient for this. At the same time there was a general request from various quarters for decontrolling the oil price and giving it market control. Our country's policy also changed to 'Privatisation, Liberalisation, Globalisation'. Thus oil prices were decontrolled in a gradual manner to reach a target of no-subsidy. That is the present stage we are now in.

    However when GST was introduced, the central government proposed oil also to come under GST. But most state governments opposed this as they found that the oil is one of their cash cow and the other being liquor. Hence both were kept out of GST. Hence both centre and States have the freedom to increase the tax rates on oil.

    If we analyse the components included in petrol and Diesel price we can see that the huge portion is contributed by state tax, followed by central tax.

    The vulnerable sections and essential sectors are compensated by govt subsidy even now. Central govt has provided free LPG connections and free supply of LPG cylinders under various schemes. So the poor are not affected by the price rise in LPG cylinder. For the organised working class, they get compensation by way of fuel allowance, conveyance etc quoting the oil price rise.
    While there are many sectors who make profit by increasing price of their goods and services basing on oil prices it is only a very small fraction of the 'real middle class' who suffer and who always suffer on any account, because they lack a cohesion of becoming a vote bank or vote block.

    The oil companies, including the public sector ones are posting profit all these years. The political parties deal the subject depending on who is ruling where. They are not at all sincere in this matter. Though they will speak in the open against price rise, they will be adding to that by tax when they are the ruling side in states or centre.

  • The prices of petrol and diesel are determined by various factors. The reason behind increasing petrol and diesel price is due to the cost of crude oil as well as taxes imposed by the Centre and states govt.
    It is a matter of concern that every fortnight petrol and diesel prices are increasing which puts extra pressure on the consumer. In our country, petrol prices are revised by the oil marketing companies like Indian Oil, Bharat Petroleum and Hindustan Petroleum depend on international prices. So, when international crude oil prices increase, petrol prices in India go up. On the other hand, if crude oil prices in the international markets decrease, then automatic petrol prices go down.
    Around 80% of petrol and diesel are imported in India and 20% is exported. One important thing is the pricing mechanism about the petroleum product. Tpp is determined in Dollar and after that converted into rupees. The weakening of Rupees compare to Dollars is one of the major factors of the price spiral of petroleum products. So, we need to be aware regarding the pricing mechanism of petroleum product.

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