The petrol and diesel prices in India are fueling up and almost everyone is unhappy with it (except those who owns the gas station). In several metropolitan cities, the petrol prices have reached Rs. 105/litre and diesel is being sold over Rs. 90/litre.
Did you know that the fuel prices change every day? Yes!
Each and every day, the fuel prices are adjusted. These are revised every day and at 6 a.m., we get to know a new price. Sometimes, slight changes go unnoticed. A change of 5-10 or up to 20 paise goes unnoticed. This continues for a week or two which eventually affect the pocket of the consumer.
These price changes happen as fuel pricing works on a dynamic pricing system. The prices remain fixed just for a day. This is being implemented since June 16, 2017. Daily, the consumers witness a new price.
This fule price change is reflected on websites and mobile applications of different oil companies like Bharat Petroleum, Hindustan Petroleum, Indian Oil, Essar, Reliance, Shell etc. You can even check it at every fuel station or petrol pump.
Earlier, the fuel prices used to revise every 15 days. It used to remain fixed for 15 days.
The dynamic pricing system can have several pros and cons
It can help the consumers adjust to the change easily. The fuel prices do not get a hike of Rs. 4 or 5. However, as mentioned earlier, the prices change by a few paise. This goes unnoticed. This can be seen as a pro or a con as well.
On the other hand, when the prices used to be fixed for 15 days, people witnessed big variations in the prices.
Factors that affect oil prices
There are a number of factors that affect fuel prices in India. One cannot blame a single factor for the increase in petrol and diesel prices. Following are the deciding factors for petrol and diesel prices in India.
Crude Oil price
The price of unrefined oil directly affects petrol and diesel prices as it is an international commodity. The crude oil price varies whenever there is a change in the demand or supply.
The Oil Marketing companies that distribute the crude oil pay a commission to the dealers. Their profits earnings, costs etc. is covered in this commission.
Central Excise Duty
The Central Government of India levies excise duty on petrol and diesel. It is a pre-defined amount of money and not a percentage. So, it does not fluctuate with the petrol or diesel price change. Over the years, the central excise duty has increased a lot. News18 reports that in the year 2014, central excise duty on petrol used to be Rs. 9.48 per litre. However, in July 2021, it was Rs. 32.9.
The excise duty on diesel was also just 3.56 per litre. But now it has increased almost 10 times to 31.8.
State Specific VAT
Every state government levies VAT (Value Added Tax) or sales tax, on petrol and diesel. This is decided considering different factors such as dealer’s price, dealers commission and Central excise duty.
The strength of the Indian Rupee to the American Dollar is another major factor. As mentioned earlier, crude oil is an international commodity. And to buy the crude oil, the payments are made in dollars. So, it directly affects the price of petrol and diesel. The stronger the rupee is, the lower would be the price. The stronger the US Dollar is, the higher would be the fuel prices.
Demand for fuel
It is a simple law of economics. If the supply is less and demand is more, the prices would increase. Every day, the number of cars, buses, trucks, and motorcycles etc. increases. The oil refining companies in India have to acquire crude oil from the international markets to make petrol and diesel. Therefore, the supply cannot be fulfilled all the time.