Petrol and diesel were selling at Rs 69.26 and Rs 57.13 a litre last Friday, prices much higher than what prevailed on the same day in southeast asian nations such as Malaysia and Indonesia and neighbouring countries like Pakistan, Nepal, Sri Lanka, Bhutan.
The difference between the petrol and diesel prices of India and Malaysia is mind boggling. Petrol price of Rs 32.19 a litre in Malaysia was less than half what prevailed in India last Friday. The diesel price in the Southeast Asian country at Rs 31.59 a litre was 44% lower compared to India.
On the same day, petrol and diesel were available in Indonesia at prices that were 41% and 24% lower compared to India.
The difference in auto fuel prices in India and countries within the subcontinent is also no less surprising.
For example, on the same day petrol was available at Rs 42.14 a litre at fuel retail outlets in Pakistan, a price that is nearly 40% lower compared to India. Similarly, diesel was cheaper by 17% there.
Petrol and diesel were selling at Rs 53.47 and Rs 39.69 a litre in Sri Lanka, nearly 23% and 30% lower compared to India.
In Nepal, retail prices of petrol and diesel were 12% and 19% lower than prevailing rates of auto fuels in India on the same day. In Bhutan, the selling price of petrol was nearly 10% lower compared to India, though difference in diesel price was less pronounced at 1%.
While the retail price of petrol in Bangladesh was nearly at the same level as in India on that day, diesel price was 10% lower.
The high prices of fuel in India are confusing, especially when considering international crude oil prices are currently ruling at less than half their 2012-13 and 2013-14 levels.
Petrol and diesel prices ruled at Rs 68.31-73.16 and Rs 48.63-55.48 a litre respectively in 2013-14 when the price of Indian crude basket averaged at the staggeringly high level of $105.52 a barrel (bbl).
However, retail fuel prices still remain at the same level, though the price of Indian crude basket has fallen to below $47.86/bbl since then.
Taxes, the main culprit
However, the reason for India’s high fuel prices is quite clear. Taxes constitute 45%-52% of the retail price of auto fuels, far higher than what would be the incidence if petrol and diesel are brought under introduced Goods and Services Tax (GST) and the highest tax rate of 28% is levied.
International oil prices started their descent in July 2014. The Narendra Modi government, which assumed office in the last week of May that year, took advantage of the crash in oil prices to boost its revenue and bridge fiscal deficit instead of passing on the benefits to consumers as the logic of market-determined pricing would dictate.
The NDA government hiked excise duty on auto fuels by nine times in 2014-15 and 2015-16. Excise duty on petrol and diesel was Rs 9.48 and Rs 3.56 a litre respectively before the NDA government took office. However, through repeated hikes, it has jacked up duty to Rs 21.48 and Rs 17.33 a litre, an increase of 226% and 486% respectively over the May 2014 level.
The UPA government had decontrolled petrol prices in June 2010. Diesel pricing was deregulated by the NDA government in October 2014.
The economic logic was that market forces should determine fuel prices and not the government. But the NDA government has taken away benefits of low oil prices from consumers, acting against the very logic propounded for the deregulation of the retail auto fuel market.
