What are petrol and diesel prices?

Petrol prices once again received a hike on July 2, 2021 pushing the fuel rates past the Rs 100 per litre mark in more cities across the country. On July 2, petrol price was at Rs 99.16 per litre in the national capital. Diesel price at Rs 89.18 in Delhi. Petroleum products are used as raw materials in various sectors and industries such as transport and petrochemicals.  These products may also be used in factories to operate machinery or generators. Any fluctuation in the price of petrol and diesel impacts the production and transport costs of various items. When compared to other neighbouring countries, India has the highest prices for petrol and diesel.

What is the petrol price?

Date: July 2, 2021

What is diesel price

Date: July 2, 2021

Diesel price in New Delhi stands at Rs 89.18 per litre. In Mumbai, diesel price is at Rs 96.72, while in Bengaluru it costs Rs 94.54 per litre.

Fuel price explained

Fuels such as petrol and diesel have become an essential part of any economy. The rise or decline in fuel prices always impact how the economy of a country functions and also the spending power of the people

Fuels such as petrol and diesel are used by all of us directly or indirectly. Some people use cars, bikes for their daily commute. Trucks heavily depend on diesel to transport vegetables, foods, and other important goods. Rise in prices impact transporters, which in turn affect the goods that we buy. This is why the Opposition parties try to corner the party in power over the issue of price rise.
 
How is petrol/diesel price decided? Why do petrol, diesel prices rise and fall?

There are multiple factors that decide the price we pay. In India, the fuel prices are decontrolled. Decontrol means when the prices are linked to international crude oil prices and are not controlled by the government. Under this, the prices rise or decline depending on the global crude oil cost. So, if the global prices rise, the prices in India will also rise, and vice versa.

However, that is all in theory. The government of the day still controls the prices we pay through taxes. There are different types of taxes levied by central and state governments, which add to the fuel price.

Factors that decide petrol/diesel price in India:

1.  Crude oil price: Crude oil price is the most important factor contributing to the rise or decline in petrol and diesel prices. The change in prices depends on the demand and supply of the oil, oil production by various oil producing countries, international relations, conflicts and issues such as coronavirus pandemic.

The Covid-19 pandemic was one the biggest reasons for the fall in global crude prices recently. The prices are moving in the upward direction again as the world is getting back to normal. Crude oil prices are calculated per barrel. One barrel equals 159 litres. On Feb 16, 2021, crude oil price stands at around 63$ per barrel.

2. Demand: Rise in demand can result in less supply, which in turn can result in diesel, petrol price hike.

3. Taxes: Central and state governments levy various taxes on petroleum products, which greatly affects the final price. VAT, sales tax, excise duty are some of the taxes applied on fuel. Fuel prices have been kept out of the GST regime for now. It is said that once they are included under GST, the prices will fall drastically.

As on Feb 16, 2021, the central government is charging excise duty of Rs 32. VAT, which is charged by states, stands at as high as 38% approximately in some states. 

4. Dollar and Rupee: The exchange rate of rupee and dollar also impacts petrol/diesel price. Global trade of oil is mostly done in dollars and a strong dollar will mean high import costs and higher fuel prices.

What is fuel decontrol?

Fuel price decontrol has been a step-by-step exercise, with the government freeing up prices of ATF in 2002, petrol in the year 2010 and diesel in October 2014.

Prior to that, the government used to intervene in fixing the price at which the fuel retailers used to sell diesel or petrol.

Fuels such as domestic LPG and kerosene still are under price control.

For other fuels such as petrol, diesel or ATF, the price is supposed to be reflective of the price movements of the so-called Indian basket of crude oil