What the FAQ: Petrol, diesel prices go up yet again. But why?

Fuel prices were increased again on March 28, for the seventh time in the last eight days! Trade unions are on strike protesting against various issues, including the petrol price rises. In Delhi, petrol rates were hiked by 80 paise a litre to cross the Rs 100 mark and diesel by 70 paise a litre, according to a price notification of state fuel retailers. 

A litre of petrol in the national capital will now cost Rs 100.21 as against Rs 99.41 previously, while diesel will be sold at Rs 91.47 from Rs 90.77 per litre earlier.

In Mumbai, petrol will be retailed at Rs 115.04 per litre, while diesel will be sold at Rs 99.25 per litre. Petrol is Rs 105.94 in Chennai and diesel is Rs 96. Among the metro cities, fuel rates are still the highest in Mumbai. The prices vary across the states due to Value Added Tax (VAT). Why is this happening all over again? We try to decode it in this edition of What The FAQ.

But why are the prices going up now?
There has been a trend in India, over the past few years, that every time Assembly polls are around the corner, fuel prices are kept in tight control; the moment elections end, the prices are shot up.  

For instance, ahead of the Assembly polls in five states, fuel rates had been under a tight grip since November 4, 2021. During this time, the cost of crude oil surged by nearly $30 per barrel. Oil firms had not revised fuel prices for 137 days despite the substantial increase in global oil prices. 

But didn't the oil firms dip into losses then?
They did. On March 24, Moody’s Investors Services said that the three Central government-owned fuel retailers — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — incurred losses of around $2.25 billion (Rs 19,000 crore) in revenue for keeping the hike of petrol and diesel prices on hold during Assembly polls.

Who regulates fuel prices in India?
Oil marketing companies like Indian Oil Corporation are theoretically free to set their own prices for petrol and diesel — based on international prices. The fact that state and central taxes make up a significant portion of the retailing price means that Indian customers don't really see the benefit of this price decontrol.

What this essentially means is that while it is the international markets that decide the price of petrol, the Indian government can control it by deciding to increase or decrease Value Added Tax (VAT) and excise duty. Now, remember that VAT is levied by the respective state government while the excise duty is levied by the Central government.

So, the government can ease the pain of the masses?
It certainly can, but it doesn't necessarily materialise. Oil price decontrol cons are taken by the Indian people but its benefits never reach the masses. When global prices go up, this is passed on to the consumer, who has to cough up more for every litre of fuel consumed with heavy taxes remaining intact. But when the reverse happens and prices go down, the government — almost by default — slaps fresh taxes and levies them to ensure that it rakes in extra revenues.

It is noteworthy that for 18 days in March and April last year, the prices of petrol and diesel remained unchanged as four states and a Union Territory went to polls. However, after the results were announced on May 2, the prices rose steadily to hit record levels.