Every day at 6 am, a new ray of hope sets in as petrol prices are ascertained based on various market conditions. However, going by the recent times, these hopes are often short-lived. New rates surpass the previous day’s record, leaving consumers and industries concerned. In the last three months, petrol prices in Bhubaneswar have shot up from around Rs 102.71 per litre to Rs 108.55 per litre, up by over 5%.
As prices keep increasing month on month with no respite, let’s understand what is driving the upswing. In India, petrol prices are computed based on four main components:
- Base Price (price at which petrol dealers/distributors buy from Oil Manufacturing Companies)
- Excise Duty (levied by Centre)
- Dealer’s Commission
- VAT (levied by State)
The addition of all four components is referred to as ‘retail price’ that is paid by the end consumer. Currently, the Central and State tax makes up more than half of the retail price in Bhubaneswar. The Centre levies ₹32.9 per litre of excise duty on petrol while the state levies 32% VAT. In May 2020, the Odisha government hiked VAT on petrol by Rs 3.11 per litre, and so did the Centre.
While taxes are large contributors to higher fuel rates, the demand-supply mismatch of crude oil is also a growing concern for oil-dependent countries like India. As the world recovers from the pandemic, economic activity has picked pace, driving up demand for crude oil. However, the major oil-producing nations have been slow to boost production to meet this recovered demand. As a result, crude oil prices have risen sharply, adding to the woes of consumers.
In one year, the price of crude oil has nearly doubled. Brent crude has hit an all-time high since 2018 with a cost of $85 per barrel, which earlier sold at $42.5.
In simple words, the sharp increase in crude oil prices and taxes has contributed to the petrol price hike in Bhubaneswar.