How are petrol and diesel prices decided in India?

The History Of Oil

Namaskar, In This Article. We’ll Be Talking About The Hike In Petrol And Diesel Prices. Why These Prices Are Increasing? What Alternatives Do People Have? Why The Government Is Increasing These Prices? All Will Be Discussed Today. To Know Why These Prices Are Increasing And Till When These Prices Will Rise. We Have To Understand A Few Important Points Of The Economy, Which We Will Guide You Through With Easy Examples.

 So Let’s Start With Today’s Topic The 1st Thing We’ll Discuss Will Be The

Government’s Revenue 

That From Exactly Where Does The Income Of The Government Come From The Government’s 53% Revenue Comes From Taxes, 36% Revenue Comes From Borrowings (Bonds) And 6% Comes From Disinvestment, For Instance, The Government Is Selling Its Stake In Lic, Railtel. The Remaining 5% of Revenue Comes From Non-debt Capital Receipts, Thus This Way The Government Is Getting 100% Of the Revenue.

 The Majority Revenue Of 53% Comes From Taxes And Taxes Are Very Important For The Government. Due To Covid-19, Many Businesses Started Performing Badly During The Lockdown. Many Businesses Were Closed Which Led To The Reduction In The Revenue From Taxes And Gst For The Government. Now The Government Had To Recover This From One Way Or The Other. So This Way They Thought To Increase The Excise Duty Of Petrol And Diesel, Because Earlier The Prices Were Quite Low, and the Price Of Crude Oil Dropped Down To $20 Per Barrel.

Why Is The Government Unable To Control Petrol Prices?

 Because at That Time The Demand For Crude Oil Was Low And With This Government Immediately Increased The Excise Duty In March And May 2020. The Government On Petrol Increased The Excise Duty Of Rs.13/ltr And On Diesel Rs.16/ltr, Which Means That The Excise Duty On Petrol Was Around 20 Has Increased To Rs. 32-35 During This Time, the Many States Like Maharashtra Increased Vat By Rs.2.00/ltr.

 Now The Question To--

Whom Does The Excise Duty And Vat Goes? 

So On Petrol, Mainly Two Taxes Are Levied- Excise Duty And Vat. The Former Goes To The Central Government And The Latter Goes To The State Government. Currently, Excise Duty On Petrol Is Rs.32.90 And Thus This Will Go Under The Central Government. Likewise In Rajasthan Vat Is 36% On Petrol So This Vat Will Go Under The Rajasthan Government.

 So This Way Excise Duty And Vat Is Levied On Petrol. The Base Price Of Petrol Is Quite Less But Taxes On That Price. The Base Price Of Petrol On 16th Feb 2021, Was Rs.32.11 And If You Add Dealer Commission On That So. It Will Is Around Rs. 36, So Here The Total Price Of Petrol Came To Be Rs. 36. But We Are Paying Till 90rs -100rs. 

This Is Because The Extra Money Is Going Under Governments Pocket Through Excise Duty And Vat And When This Excise Duty And Vat Started Increasing Then Nobody Focused Here As That Time. The Price Of Crude Oil Was Less ($20 Per Barrel)but As The Prices Of Crude Oil Started Increasing. People Are Getting To Know That They Are Paying A Much Higher Price For Petrol And Diesel Currently.

The Prices Of Crude Oil Have Started Increasing And Are Now $60 Per Barrel, Due To Which The Overall Price Of Petrol And Diesel Is Reaching Its Peak. And If Crude Oil Prices Increase More Then. There Are Chances Of A More High Price Of Petrol And Diesel. Its Prices Are Currently At The Levels Of 2003-2004 Prices. In Mumbai In 2003, The Price Of Petrol Was Rs.37/ltr And Today Also Crude Oil Prices Are On That Level.

But Still, On This Rs37/ltr We Are Paying Rs. 90-100/ltr This Is Because Of The Increase In Excise Duty And Vat. The Prices Of Crude Oil Are Decreasing But The Prices Of Petrol And Diesel Are Increasing In Fy 2014-15. Government Got Revenue From Petrol And Diesel Taxes Of About 99,000 Crores. Which Kept On Increasing Based On The High Price On Excise Duty And Vat And In Fy 2016-17. It Got Revenue Of 2,42,000 Crores In Fy2020 It Was 2,39,599 Crores And Now Since The Government Became Habitual Of This Revenue Source. So During The Pandemic, The Collection Of Other Taxes Was Low Along With The Consumption Of Petrol And Diesel And Thus Prices Of Excise Duty And Vat Were Increased To Enhance Revenue.

 Why The Prices Of Petrol And Diesel Are Increasing?

Now We Got To Know-Why The Prices Of Petrol And Diesel Are Increasing? But Till When These Prices Will Rise Will It Decrease? Will The Excise Duty Decrease? As For Me, I Don’t Think So This Will Happen, Let Me Tell You Some Facts And Figures Behind This. The Government’s Fiscal Deficit Is Increasing For The Past Few Years. One Reason Behind This Is The Coronavirus Pandemic And The Other Is The Economic Slowdown. 

Let Me Tell You- What Is A Fiscal Deficit?

 For Example, if You Have An Income Of 40,000rs And Your Expenses Are 50,000rs, The Extra 10,000rs Expenditure Is Called A Deficit. When The Government’s Total Expenses Are More Than The Government’s Total Income Then A Deficit Is Made. The Lower The Deficit The Better It Is In Fy2019, This Fiscal Deficit Was 6.45 Lakh Crore Which Grew In Fy2020 To 9.30 Lakh Crore Which Further Increased To 12.34 Lakh Crore In January 2021.

 And It Has Been Estimated That In March 2021 This Will Increase To 15 Lakh Crores. Now With So Much Fiscal Deficit, The Government Needs To Enhance Its Revenue In One Way Or The Other. Here The Government Focus Is On More Strong Income Sources And If You Think That The Excise Duty Will Decrease Then I Don’t Think So. The Other Reason Is That The Government's Capital Expenditure Target Is Continuously Increasing, And It Wants To Majorly Focus On Other Things Like Manufacturing And To Invest More In That. In Fy2018.

 The Government's Capital Expenditure Was 3.09 Lakh Crores, Which Increased A Bit In Fy2019 By 3.41 Lakh Crores, In Fy2020 It Increased To 3.90lakh Crores And In Fy2021. It Increased By 4.39 Lakh Crores And It Is Estimated That In Fy2022. It Will Increase To 5.54 Lakh Crores. Capital Expenditure Here Is Continuously Increasing And We Can Say That The Government Needs To Increase Its Income Sources.

 One Thing You Might Have Observed That On Petrol And Diesel There Is Excise Duty And Vat And Not Gst. The Main Reason Behind Gst Not being Involved In Petrol And Diesel Is That The Government Wanted That Whenever They Needed Revenue Or Emergency Funds They Could Get It. This Is The Reason-

Why Did Not Include Petrol And Diesel Under Gst?

 Why They Did Not Include Petrol And Diesel Under Gst The Highest Tax Slab In Gst Is 28% And If The Government Wants To Collect More Taxes. Then It Is Not Possible Under Gst, And Thus Excise Duty And Vat Is Suitable For This Collection With This Many State Governments Are Earning Around 20% From Only Diesel And Petrol. As The Prices Of Petrol And Diesel increase, Expenses Also Increases Because Of This Transportation Charge increase, Bus Drivers, and Rickshaw Pullers Demand More Money As Fuel Charges Also Increase.

 Thus These Increasing Rates Become Quite Problematic. Now, 

What Could Be The Solution To This Problem?

 What All Things Could People Follow For A Lesser Impact Of Such Expensiveness? One Solution For This Is Electric Vehicles. Tesla Has Recently Started An Indian Entity In Bangalore And Elon Musk Also Stated That In 2021. Tesla Will Come To India Tata Motors Is Also Performing Well In Electric Vehicles, As Their Tata Nexon Ev Is Doing Quite Well. 

So This Is The New Trend We See, That If The Prices Of Petrol And Diesel Keep On Increasing, Then Ev Is The Best Option But, There Is One Problem In Ev As Well. In Ev Majorly Copper Is Being Used And Due To High Demand In Electric Vehicles The Prices Of Copper Is Increasing. If Here Also Government Puts Excise Duty On Copper Or Some Other Tax Then Problems May Increase Here Also As Of Now, The Only Solution Which Can Be Seen Here Is Electric Vehicles Only But India’s Infrastructure Is Not Ready For Ev, As. It May Take 2-3 Years For This To Get Ready Both the Central And State Government Are Becoming Greedy For Collecting Taxes.

 And This Greed Is Troubling People And If People Become More Troubled Then They Can Trouble The Government By Finding Alternative Solutions Like Opting For Electric Vehicles. If A Lot Of People Started Using Electric Vehicles Then The Plan Of Government To Collect Taxes Might Fail. Here Because Decrease In Crude Oil won't Work, If Electric Vehicles Come In More Usage Then The Prices Might Decline More For Crude Oil. As The Main Problem For India Are Taxes I Believe That Alternatives Like Ev Can Come In Favour For People Because Reduction In Excise Duty And Vat Is Quite Difficult As Per Me. Thank you For reading This article!!