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Pumping up the price: Why are petrol prices still so high in India?
Petrol prices remain high across India with the price being close to 100 rupees per litre in New Delhi, the nation’s capital. The petrol hike has made citizens miserable as they find it difficult to afford essential commodities and transportation in their day to day lives.
These soaring gas prices remain high and keep rising despite India announcing that it is getting oil at a cheaper price from Russia.
What is the current context of gasoline prices in India? How is the petrol price calculated in the first place? And will Indians see any respite at petrol pumps anytime soon?Prior to the pandemic, in 2020, an owner of a two-wheeler was paying approximately INR 900/- for a full tank of fuel. Today that cost is around INR 1500/-.
To make things worse, petrol prices in India have been on the rise in recent months. According to the Ministry of Petroleum and Natural Gas, the average retail price of gasoline in India was Rs. 89 per litre in February 2023. This is a one rupee increase from the previous year, when the average retail price was Rs. 88 per litre.
Why is the price increasing at all?!
The factors driving this increase include a rise in international oil prices, fluctuations in the exchange rate between the Indian Rupee and the US Dollar, and changes in taxes and duties levied by the government. Refining costs also play a role in determining gasoline prices.
That’s a lot of complicated terms at once. What do all of them mean and how is the price of petrol determined?
The price of gasoline in India is determined primarily by 4 factors:
International oil prices- this refers to the price of crude oil, which is the primary component of petrol. The price of crude oil is influenced by global supply and demand, geopolitical tensions like the Russia-Ukraine conflict, and changes in the market due to the ongoing COVID-19 pandemic.
The exchange rate between the Indian Rupee and the US Dollar also affects the price of gasoline in India as oil is priced in US dollars. At present, a weaker Rupee is increasing the cost of importing oil into India, leading to higher gasoline prices.
Here’s an example. Suppose you go to the mall and spend INR 5000/- on shopping. Your total expense for the day is not just 5000 rupees. Keep in mind your uber also cost you INR 200/- to get to the mall and to come back home. In actuality, your total expenditure for the day was INR 5400/-.
Refining costs also play a role in determining gasoline prices. The cost of refining crude oil into gasoline can be impacted by changes in the cost of raw materials, labor, and energy.
Taxes levied by the Indian government also have a significant impact on the retail price of gasoline in India. Taxes and duties account for more than 50% of the retail price of gasoline in the country. This means if your petrol bill is 1000 rupees, over 500 rupees are because of taxes and duties.
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