Economy

Brent is below $70 but fuel prices still unchanged

Our Bureau New Delhi | Updated on August 11, 2021

Petrol price was last revised on July 17; OMCs say pricing based on formula

Prices of petrol and diesel have remained unchanged for 24 days now, even though Brent price has dropped below $70 barrel.

While the government is clear that the market is deregulated and any call on revision has to be taken by oil marketing companies, the latter say the price is formula-driven and, therefore, any change is subject to how in the global market prices behave.

“Domestic product prices are aligned to international product prices on a rolling average basis. Crude prices have been volatile in last few weeks, generally in the range of $73 to $77 a barrel with a momentary fall followed by sharp spikes, generally driven by news on Covid fears and supply constraints. There is also hardening of product cracks for motor spirit, and high speed diesel. Domestic market sees a tempered impact of all these factors,” said a senior executive with an oil marketing company.

Retail prices

Retail prices of petrol was last revised on July 17 when it touched ₹101.84 a litre in Delhi. Diesel saw the last revision on July 15 when the price touched ₹89.87 a litre. At that time, Brent crude was on a slide and touched a one-month low of $68.62 a barrel, then moved upward to touch $76.33 on July 30. Since then, it has slipped again and, on Tuesday, it touched $69.33 a barrel.

What is to be noted is that the price at which refiners sell to retailers is revised on fortnightly basis and is linked to international prices; at the retail end – the price at which retailers sell to consumers – it is revised on a daily basis based on a formula. When asked why retail prices don’t reflect prevailing international prices, the executive said “there is a tapering effect both on rise as well as on decline due to the rolling average”.

Tax on fuel

However, another important factor for high prices is taxes and local levies on auto fuel. As on date, the Centre collects ₹32.90 a litre on petrol and ₹31.80 a litre on diesel.

Over this plus basic price, various State governments and Union Territories levy Sales Tax/Value Added Tax at different rates. In the last three financial years, the distribution of every one rupee collected as tax on fuel between excise duties (including cess) and State VAT is about 57 paise and 43 paise, respectively.

Interestingly, the Finance Ministry, on Tuesday, when responding to a question in Parliament on what is being done regarding the Monetary Policy Committee suggestion to reduce taxes and duties imposed on petrol and diesel by the Central government, said the price situation is monitored constantly by the government and appropriate measures are taken to maintain price stability.

In response to another question, Minister of State for Finance, Pankaj Chaudhary, informed that the Centre collected about ₹14.4-lakh crore by way of Central Excise Duty and cess on petrol and diesel from financial year 2014-15 to 2020-21.

Even during the first three months of this fiscal, collection is at about ₹1-lakh crore. There have been constant demands for duty reduction, but sources in know ruled out any immediate decision.

Retail inflation rate is at uncomfortable level of 6 per cent for May and June. The numbers for July will be out on Thursday. “The government is keeping close eye on inflation... and any call will be taken only after two months, closer to festive season,” a source told BusinessLine.

Fuel price under GST

Meanwhile, various Opposition parties have been demanding to bring petrol and diesel under GST. On July 26, Oil Minister Hardeep Singh Puri told the Lok Sabha in a written response that as per Constitutional provisions, the GST Council will recommend the date on which GST be levied on petroleum crude, diesel, petrol, natural gas and aviation turbine fuel. “So far, the GST Council has not recommended. inclusion of oil and gas under GST,” he said.

Published on August 10, 2021

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