Rising prices of petrol and diesel

Outright robbery of workers and peasants in the name of serving the people

Petrol and diesel prices have been rising relentlessly. On August 3, 2021, their prices in major cities were as follows.

City Petrol (Rs/litre) Diesel (Rs/litre)
New Delhi 101.84 89.87
Mumbai 107.83 97.45
Kolkata 102.08 93.02
Chennai 102.49 94.39
Bengaluru 105.25 95.26
Hyderabad 105.83 97.96
Bhopal 110.20 98.67
Jaipur 108.71 99.02

Petrol prices in smaller towns are higher. It was 113 rupees per litre in Hanumangarh, Rajasthan on August 3.

A year ago, on August 3, 2020, petrol price in Delhi was Rs 80.43 per litre and diesel price was Rs 73.56 per litre. Two years ago, on August 19, 2019, petrol price in Delhi was Rs 71.84 per litre and diesel price was Rs 65.11 per litre. Prices of these essential commodities have risen over 25% in a year, and over 40% in two years.

Petrol and diesel are not luxury items. They are vital necessities for crores of people. Rising fuel prices have burnt a deep hole in the pockets of working people.

People who have to use two-wheelers or cars for their daily work are devastated. They have no choice but to cut down on other expenses.

The hike in fuel prices has hit peasants very hard. They need diesel and petrol to run their pumpsets, generators, tractors and other vehicles.

Higher fuel prices are having a cascading effect on all commodity prices, as a result of increase in transportation costs. It has contributed to price increase of foodgrains, vegetables and pulses. Bus fares, auto fares, and taxi fares are rising. Life is becoming a living hell for workers, peasants and broad masses of working people.

Taxes on petrol and diesel

More than 80% of India’s demand for crude oil is met by imports, mostly from West Asia. The changing price of crude oil in the international market no doubt has an impact on petrol and diesel prices in India. However, the main factor behind the high prices is the massive taxes levied by Central and state governments.

Below, is a break up of petrol and diesel prices on August 1, 2021, as per the Indian Oil Corporation (IOC) website.

Price Buildup of Petrol at Delhi effective 01-Aug-21

Petrol price elements Price in Delhi on August 1 (Rs/litre)
Base Price 41.24
Freight etc 0.36
Price Charged to Dealers (excluding Excise Duty and VAT) 41.60
Add : Excise Duty Rs/Ltr 32.90
Add : Dealer Commission (Average) 3.84
Add : State VAT (including VAT on Dealer Commission) 23.50

That is, out of Rs 101.84, the taxes of Central and State governments amounts to Rs 56.40.

With regards to Diesel price in Delhi, the following table shows the breakup.

Price Buildup of Diesel at Delhi effective 01-Aug-21

Diesel price elements Price in Delhi on August 1 (Rs/litre)
Base Price 42.00
Freight etc 0.33
Price Charged to Dealers (excluding Excise Duty and VAT) 42.33
Add : Excise Duty Rs/Ltr 31.80
Add : Dealer Commission (Average) 2.60
Add : State VAT (including VAT on Dealer Commission) 13.14

Many states levy higher rate of VAT on petrol and diesel as compared to Delhi.

Fuel prices in all the neighbouring countries are much lower than in India. The cost of petrol per litre on June 14 was Rs 51.87 in Pakistan, Rs 68.18 in Sri Lanka, Rs 77.78 in Bangladesh.

Crude Oil prices (2011-2021)

The global prices of crude oil today are much lower than the high they reached in 2012-2014. They are about 40% lower. (See graph below) However, because of high taxes and other levies, the cost of petrol and diesel today is much higher than it was seven years ago.

The oil refining and marketing companies like Indian Oil Corporation (IOC), Reliance Petrochemicals, BPCL, HPCL, etc. make profit in both refining crude oil and marketing the products, including petrol and diesel.

Petrol and diesel prices are set by the Public Sector Oil Marketing Companies (IOC, BPCL, HPCL). Whenever the international price of crude oil rises, they raise the base price proportionately, to protect their profits.  A rise in the base price automatically leads to higher tax revenues.

When the price of crude oil falls in the international market, the oil marketing companies do not lower the base price proportionately. For instance, in April 2020, when the international crude oil price had fallen to a very low level, the oil companies in India declared a base price of Rs 27.95 a litre. This base price allowed the oil companies to make a record profit margin of Rs 13 per litre sold. The apparent concession they made was more than compensated by the rise in the rates of petroleum taxes. People did not benefit at all from the fall in the international crude oil price.

The petroleum pricing policy being followed needs to be seen in the context of the privatization program. Indian and foreign capitalist monopolies in oil refining and marketing are planning to rapidly expand their share of the retail market for petroleum products.  They aim to do so both through accelerated growth and by taking over the public sector companies engaged in oil refining and marketing. (See box)

False claim of the government

On June 13, Union Minister for Petroleum and Natural Gas and Steel Dharmendra Pradhan said fuel prices cannot be brought down because the government is using this money on welfare schemes.

The Petroleum Minister spoke about the government spending Rs 35,000 crores on vaccines and Rs 1 lakh on Pradhan Mantri Garib Kalyan Yojana to provide foodgrains to the poor for 8 months.

What the minister is hiding is that the Rs 35,000 crores on vaccines is money given to the big pharma companies producing vaccines, to maximise their profits. The food grains which the government claims to be distributing to the poor and needy, are already there in the godowns of the Food Corporation of India. They will rot if they are not distributed to people. The Minister is mischievously attaching a price tag to the food grains, to hide this fact.

Petrol and diesel account for a huge share of revenue collected by the Central government from excise duty. According to revised budget estimates, excise duty on petroleum products amounted to Rs. 3.6 lakh crore in 2020-21. Taking into account that India’s population is about 135 crores, it amounts to an average annual excise duty burden of Rs 2700 on every man, woman, and child.

The Central government is increasing the tax burden on the toiling masses of people who are already suffering from the economic decline and lockdowns. It is not raising the rate of taxation of capitalist corporations, which have increased their profits by more than 50% in 2020-21.

The super-rich are growing even richer, at a very rapid rate.  However, more is being extracted from the toiling majority of people.  On the one hand, corporate tax rates not being raised.  On the other hand, huge amounts of money are handed out from the central budget to big capitalist loan defaulters every year.

In sum, the truth is the opposite of the Union Minister’s claim. Taxation is not being driven by the motive of looking after the welfare of all.  It is not aimed at collecting more from the rich in order to look after the poor.  On the contrary, taxes are designed to further rob the already exploited workers and peasants, so as to guarantee maximum profits for the super-rich capitalists.

Pricing policy of government assists private oil monopolies

Petrol prices were deregulated in 2010 and diesel prices in 2014. Since then petrol and diesel marketing companies can increase the price of petrol and diesel to adjust for changes in international crude oil price in order to make guaranteed profits.

Indian and foreign capitalist monopolies in the petroleum sector have long been eyeing the possibility of establishing their control over the refining and distribution of oil in India. The deregulation of petrol and diesel prices opened the way for these companies to expand into distribution.

By December 2019, India had around 66,408 petrol pumps. Public sector retailers owned 59,831. Nayara Energy (formerly Essar oil) which is owned by Russia’s Rosneft has 5,453 petrol pumps. Reliance has about 1,400 petrol pumps. Royal Dutch Shell has 167 petrol pumps.

Reliance Petrochemicals has announced a tie up with the British oil multinational BP to set up a huge number of petrol pumps in India. The deal was announced in December 2019. Reliance plans to increase the number of petrol pumps it owns to 5,500 in 5 years. According to news reports, RIL plans to target the highways. Its main competitor on highways is BPCL. The decision of the Central government to privatize the profit making BPCL must be seen in this context.

Nayarra Energy plans to increase the number of petrol pumps it owns to 7000 in 2-3 years. Dutch Shell is slated to add 150-200 more petrol pumps. The French company Total SA is also trying to enter the oil distribution market in India and has tied up with the Adani group.

Step by step, successive governments have been trying to privatize the petroleum refining and distribution sector. The Indian and foreign monopolies in the petroleum distribution sector want guaranteed maximum profits in distribution through petrol pumps. The policy of the Central government of repeatedly hiking the price of petrol and diesel, so as to ensure such guaranteed maximum profits, is a policy that serves these private oil distribution companies.

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