Empty pockets and stomachs: The oil story

Petrol hits 100* in Mumbai
Petrol hits 100* in Bangalore
Petrol hits 98* in Delhi
These are the statements we hear every time we listen to news channels. These statements make us worry and make us wonder how this can happen when the prices of barrels in the international market are falling?

The international market prices depend on the prices set by the manufacturing countries and in-country prices are set by the Indian government and since 80% of the oil is imported from other countries there are a lot of taxes involved. The prices are defined with a formula named trade parity price (TPP).

FACT WONDERS 1
60% of the price of petrol is just taxes.

The central government puts a separate tax known as excise duty while the state government puts a separate tax on the base petrol prices to earn revenues.

FACT WONDERS 2
In the pandemic, the tax collection of every sector dropped except the tax collection from the fuel sector. In fact, it saw an increase in the tax collection as compared to the same period in 2019.

The final price of the petrol we pay includes base price, freight, the price charged due to dealers, excise duty, dealer commission, and VAT.

Petrol = base price +freight +price charged due to dealers +excise duty + dealer commission + VAT

TPP

Trade Parity Price (TPP) is the weighted average of Import Parity Price (IPP) and Export Parity Price (EPP) with weights of 80 and 20 respectively. IPP is the price importers would pay in case of actual import at Indian ports, while EPP is the price oil companies would realize on export.

Petrol and Empty stomachs

We might be thinking about how the increased prices affect us and that to avoid it, we’ll just use the cab or public transport. But the truth is with the increase in prices of petrol, the price of everything goes up as everything requires transportation and transportation requires petrol and diesel.

*Prices as of 29 June 2021