Petrol and diesel prices have moved up 22 times in the last 23 days. The prices of petrol and diesel have reached 80.43 INR and 80.53 INR in Delhi. It has happened for the first time that the fuel of the ‘poor’, Diesel has become costlier than petrol.

Ever since the daily price revision of fuel prices resumed on 7 June 2020, petrol and diesel prices have increased by 9.17 and 11.14 respectively. However, the hike is not the same in other cities of India. In the other metros, petrol is priced at a premium of 5 to 8 INR per litre.

The taxes on petrol and diesel are similar in Delhi but in many other cities, diesel attracts lesser taxes.

Why the Price Rise is so Steep?

The government has decontrolled the prices but is normally a one-way street. In the event of global price rise, the burden is passed on to the consumer in the form of increased prices. But when crude oil prices come down, it is a normal practice that instead of benefiting the consumer, the government increases the taxes on fuel prices to collect more revenue. Hence, the consumer is either forced to pay what they are already paying or even more.

Crude oil prices crashed to around $35 in early March and fell further to $20 in the latter part of March as demand decreased due to the COVID-19 pandemic. The prices have now recovered and are hovering around $37 per barrel. However, this benefit was not passed on to the consumer.

The government froze the retail prices of fuel for a record 82 days during the lockdown while it increased the excise duty twice. The government claimed that the increase in excise duty didn’t impact the consumer but the consumer didn’t get the benefit of dirt-cheap crude oil prices. Apart from the central government, several states also increased the levies on petrol and diesel to mop up more revenue.

What are the Taxes on Fuel?

India charges one of the highest taxes in the world on fuel from consumers. On 5 May 2020, the central government imposed the steepest hike in excise duty by 13 INR per litre on diesel and 10 INR per litre on petrol. As per the report published in The Indian Express, in February the centre plus states tax on fuel was around 107 percent of the base price of petrol and 69 percent on the base price of diesel. But after two successive revisions, Excise Duty and VAT on the base price of petrol is a whopping 260 percent and 256 percent on diesel.

As economies of countries have now started picking up, the increasing consumption of fuel prices will inflate the prices at a much faster pace. The prices are expected to rise continuously in the long run in the absence of government intervention.