Petrol prices in Delhi are now eeringly close to the levels when Modi took oath as PM more than three years ago. Price on Sep. 12 was Rs. 70.38/ltr just a rupee lower than price on May 26, 2014 (Rs. 71.41/ltr). Prices have reached their highest levels in last three years. After prices are being adjusted daily since Jun 18th this year, prices have increased by Rs. 5-6 per litre across cites invoking sharp reactions from the public on social media. #BJPFuelLoot was trending at no. 1 on Twitter yesterday garnering 1.2 million impressions.
In an earlier article Modi@3: Riding the Crude Wave, Yet Failing to Fuel Consumption, I deliberated how low crude oil prices have been a boon for Modi government resulting in savings and additional indirect tax receipts of Rs. 11-13 lakh crores. A significant portion of the growth is attributed to decline in oil prices as our import bill has reduced from Rs. 8.6 lakh crore in FY14 to Rs. 4.7 lakh crore in FY17.
Govt. has been filling its coffers by increasing indirect taxes on fuel. Excise duty collected on petroleum products more than doubled from Rs. 0.8 lakh crores in FY14 to Rs. 2.2 lakh crore in FY17. This is the primary reason why consumers have not benefitted despite a reduction in international crude oil prices which are down by more than 50% since May’14.
As if this was not enough, govt. introduced the concept of daily revision of fuel prices. The increase in fuel prices in the last three months since daily revision came into picture have been very steep. On June 18th the first day when daily revision of prices of fuel products came into effect, petrol price in Delhi was Rs. 64.91/ltr. Since then till Sep. 12 it has increased by Rs. 5.47 per litre (8.4%). 62% of the price of petrol today is accounted for by taxes (centre / state), dealer and oil companies’ margins.
Price of petrol is determined mainly by price of crude oil we import and currency movements. An analysis of the breakup of price build up shows that the current steep increase in is not entirely on account of crude oil price and depreciation of rupee. After Modi government, it’s the turn of oil marketing companies (OMCs) like IOCL, BPCL, HPCL and dealers to make merry by milking the consumers to their benefit.
|Particulars||18-Jun 2017||12-Sep 2017||% Increase|
|Crude Oil & Refining Cost||24.89||26.65||7.1%|
|Petrol Price in Delhi (Rs. / Ltr)||64.91||70.38||8.4%|
Interesting findings: The increase of Rs. 5.47/ltr since June 18, 2017 is explained by:
- 1.76/ltr due to increase in international crude oil price and adverse currency movement.
- 1.16/ltr due to increase in VAT.
- The rest is being pocketed by OMCs and Dealers. The margin which OMCs are making has increased by Rs. 1.86/ltr and dealers by Rs. 0.69/ltr.
- Margin of OMCs has increased by 85% in last 3 months while dealers by 27%. Why have OMCs increased their margins by such a high percentage, have their costs increased by so much during this period?
Price Build Up of Petrol in Delhi
Source: Indian Oil Price Build Up
Who is pocketing the increase in Petrol Prices?
Oil prices and currency account for only 1/3rd of the increase since daily revisionbecame effective. Rest is being pocketed by state governments (21%), dealers (13%) and oil companies (34%). Thank god central government has kept excise duty unchanged. Slowly and steadily people are realizing this game played by govt., dealers and companies.
I am all for de-regulation of prices and companies having the freedom to set prices.However this should have reduced petrol prices in line with fall in crude oil price. OMCs health have substantially improved. Their profits are up and debt is down by more than 50% as compared to Mar. ‘14. Ultimately these companies are owned by government and have to fulfil socio economic objectives as well. They should not be worried only about their profits.
To conclude, this issue has the potential of becoming a big headache for the Modi government. People are now understanding the math. The explanation that taxes were hiked to meet the welfare objectives and infrastructure build up will not be bought anymore as nothing substantial is visible on the ground. The economic growth has nudged below 6%. People have begun to ask, where the money collected from us has gone. Add to this, the profiteering element of OMCs detailed above. Modi govt. and Oil Marketing Companies (OMCs) have been taking the public for a ride. But they should not test the patience of the public. Yeh jo public hai yeh sab jaanti hai…
A variant of this article was first published in The Quint.