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.