Prices of petrol and diesel were hiked for the sixth consecutive day on Friday as oil companies look to regain the losses incurred due to fall in prices and the coronavirus-induced lockdown. On Friday, a litre of petrol became 57 paise more costly while the price of diesel went up by 59 paise per litre.
In effect, the price of petrol has gone up by Rs 3.31 a litre and that of diesel by Rs 3.42 a litre in just the last six days. With the global crude oil prices regaining lost ground and demand reviving in the Indian economy, oil retailers are passing on the impact of last month's excise duty hike on consumers.
The fuel prices are now at a four-and-a-half month high in India even as crude oil rates have slumped below the $40 a barrel mark.
If that's the case, then why are the fuel prices rising currently?
Last month, as India was battling the coronavirus pandemic in the third phase of the lockdown, a revenue-starved Central government hiked the excise duty by a record Rs 10 per litre on petrol and Rs 13 per litre on diesel. According to a report by Care Ratings, the hike effectively meant that the Central government is collecting around 270 per cent taxes on the base price of petrol and 256 per cent in the case of diesel.
As per the government notification issued, of the Rs 10 per litre increase in duty on petrol, Rs 8 will be road and infrastructure cess, while Rs 2 will account for special additional excise duty.
Similarly, for Rs 13 per litre duty increase in diesel, Rs 8 will be road and infrastructure cess, while Rs 5 will account for special additional excise duty. "The revenue generated from these duties shall be used for infrastructure and other developmental items of expenditure," an official said. "Retail sale prices of petrol and diesel will, however, not change on account of this increase in duties, so it will have no impact on the consumer," the official added.
However, with barely any economic activity, thanks to the lockdown, and near to nil demand for fuels, the impact of the hike was not passed on to consumers that time as crude oil prices were at record low levels.
Now, with India entering Unlock 1.0 and economic activities picking up, the oil marketers are passing on the tax burden to the customers. "The oil market has turned the tables in May gaining over 50 per cent from April's prices, hovering over $30 a barrel now and rising. If the rising trend continued, oil companies, which absorbed a big increase in excise duty on petrol and diesel early in May, would start making losses on sale of petrol and diesel. The sales volume of auto fuel is already down due to a demand squeeze caused by Covid-19 pandemic and lockdown," an official at an oil marketing company (OMC) was quoted by media reports. It was estimated that the OMCs would have to hike fuel prices by Rs 4-5 per litre to balance the losses incurred.
As a result, OMCs restarted the daily price revision of the petrol and diesel after an 83-day hiatus on Sunday.
Demand has steadily gone up for both petrol and diesel with lockdown restrictions being eased across the country. "The crude oil throughput of IOC refineries crossed 80 per cent as on date, with consumption of all petroleum products put together almost doubling in May 2020 as compared to April 2020 levels," the company had said in a statement on Wednesday.
Hence, as the calculations indicate, brace up to pay more for the fuels in the coming days.
