You may wonder what is the reason behind the change in the prices of petrol at the different petrol pump in cities near by me. And you would have thought why there be abrupt inreament. In addition, this variation may be considerable between cities that are far from each other. For instance, the petrol price in Delhi is Rs.95.41 per liter on December 22, 2021, and the same petrol price is Rs. 109.98 per liter in Mumbai. Furthermore, various taxes impact petrol prices in India as well. The fear linked to the rise of petrol prices in India seems to be never-ending.

Who should be blamed for the increased price of petrol? Should we blame crude oil for these abrupt prices hikes? Or, is the root cause something different?
Well, the answer lies in the point that while crude oil resumes remain cheaper, it is the taxes levied by the state and central governments which are responsible for the ever-rising petrol rates. But not the sole reason of course. There are other things also which become its reason indirectly or directly.

There are so many reports which have found these reasons:-

To begin with, it would be quite simple to associate the tax factor with the abrupt increase in petrol prices.
In addition, Since May 2014, there has been a successive increase in excise duties.
Furthermore, Data also reflects that as of November 2014, there has been a 54 percent increase in the excise duty on petrol.

Even though the government chopped excise duty on petrol according to the Budget 2018. In contrast, we cannot see any positive change, when the price of petrol is taken into consideration. Because of the introduction of Rs. 8 per liter as Road Cess. Daily price revision of petrol has also begun. As a result, there could always be a difference in the price of petrol. It has been discerned that the price rise has happened gradually. As petrol does not fall under GST, the price of it differs across states of India. However, when considering the cost & freight prices along with the excise duty, dealer commission, applicable VAT, etc, it has been found that the taxes on petrol sums up to be more than its actual cost. And which seems insane.

The gap in Prices of Petrol in Different Cities
The gap in Prices of Petrol in Different Cities

A Glimpse of Past of Hike in petrol prices

Presently crude oil has become much costlier compared to what it had been way back in 2014.

Previously, when prices hiked then it was the insane amount but right now it has become much more amount to bear.

It is the combined taxes that are levied by the state and the central government that have caused the petrol prices to rise. The Covid has also impacted it to a certain extent. Because back in the starting of Covid OPEC + countries slashed down the supply. Which caused the difference in supply and demand. Which also caused the hike in crude oil prices.

Method of Calculation of Petrol Price in (Mumbai;India)

Petrol price at the pump is the product of various things. Particularly, these contain the average of the India crude basket, to which is added a host of taxes including value-added tax, central excise, etc.

In simple words,
Avg × India crude basket + Host of taxes( VAT + Central excise)

Petrol price in Mumbai: Rs 109.98 per liter

Diesel price in Mumbai: Rs 94.14 per liter

Petrol price in Delhi: Rs 95.41 per liter

Diesel price in Delhi: Rs 86.67 per liter

At the moment, we have the excise duty levied by the government, which is a staggering Rs 21 per liter. Should this be reduced we might get some respite from the very high retail price of fuel and diesel at the pump.  In addition, The value-added tax also differs from state to state. In cities like Mumbai and New Delhi, the value-added tax is very high. Because of various reasons. As a result, high prices for both petrol and diesel.  

In India, retail prices are specified by the oil marketing companies, bearing all these things in mind. So, the retail price of petrol in India today is determined by the Indian Oil Marketing Company, which is the largest oil marketing company in the country. Click here for more information regarding this.

Impact of Hike in petrol price

Let’s discuss some of the questions related to the petrol and fuel increment put on the economy as a whole. What is the impact of the petrol price of the pump on current demand?

Hike in fuel or petrol prices affects the pocket of common people lives. Citizens’ lives become more difficult because steep fuel prices lead to higher inflation. And if one thing changes then it put the effect of other related things as well. Even some petrol pump near by me or you struggle during the hike in petrol prices. It affects the prices of other essential goods as well. In cities like Mumbai which is very costly there increase in petrol price causes more damage. The value of essential commodities like food, medicines, etc has been adversely affected by a rise in fuel prices. As inflation increases, the cost of borrowing and the cost of capital will automatically tend to increase, which can have a long-term impact as well, he says. Rising fuel prices also increase import pressures for the government. This leads deficits to go up, which eventually leads to a fall in the value of the rupee.

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