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Are we paying right price for Petrol/Diesel in India

In recent times, price of crude oil has come as low as 29$(67 Rupee)/barrel (159 litres) and itsprice in Delhi was 59 Rupee/Litres. On the contrary, when the crude oil prices was around 100$/barrel (refer below chart), its price in Delhi was 73.18. So the question is that, why are we paying more even though crude oil prices is low?


There are certain factors which decide oil prices:

  1. Dollar value :


  1. The central government has been consistently hiking excise and other levies to increase its tax kitty. The total levy on unbranded diesel is Rs 17.33 per ltr and for unbranded petrol it is Rs 21.48 per ltr today versus Rs 3.43 per ltr for diesel and Rs 9.20 per ltr. for petrol in November 2014 a hike of 400% and 133% on diesel and petrol respectively. Just a reminder, the excise tax for petrol in 2004 was 12.07 and for diesel was 3.15


  1. Fuel cost :

Simplified Calculation Chart for Petrol & Diesel Prices in New Delhi - (1st September 2016)


Petrol Price *

Diesel Price Calculation *

International Price of Crude Oil with Ocean Freight (as on 1st September 2016)

47$ or Rs 3149 per Barrel

47$ or Rs 3149 per Barrel

1 Barrel of Crude Oil

159 Litre

159 Litre

Crude Oil  - Cost per Litre

Rs 19.8 per Litre

Rs 19.8 per Litre




Basic OMC Cost Calculation



Entry Tax (if appl.), Refinery Processing, Margin & Landing Cost from Refinery to OMC - (Refinery Costs)

Rs 3.73 per Litre

Rs 3.99 per Litre

OMC Margin, Transportation, Freight, Landing to Dealers

Rs 2.68 per Litre 

Rs 2.33 per Litre 

Basic Cost of Fuel after Refining Cost

Rs 26.21 per Litre 

Rs 26.32 per Litre 




Additional: Excise Duty as on 1st September 2016

Rs 21.48 / Litre on Petrol

Rs 17.33 / Lit on Diesel

Pricing Charged to Dealers before VAT

Rs 47.69 per Litre

Rs 43.65 per Litre




Calculating Dealer Retail Price - Base Location Delhi



Commission to Petrol Pump Dealers

Rs 2.29 per Litre

Rs 1.45 per Litre

Fuel Cost Before VAT (rounded off for approximation)

Rs 49.98 per Litre

Rs 45.1 per Litre




Additional:VAT (Varies from State to State - 27% on Petrol & 16.75% on Diesel + 25p as Pollution Cess with Surcharge)

Rs 13.49 / Lit on Petrol

Rs 7.85 on Diesel

Final Retail Price as on 1st September, 2016 -(calculation)




Taxation Scenario on Petrol and Diesel Fuel




Tax in November 2014

Tax in September 2016

Excise  Duty on Petrol

Rs 9.20 per Litre

Rs 21.48 per Litre

Excise  Duty on Diesel

Rs 3.46 per Litre

Rs 17.33 per Litre

VAT on Basic Price on Petrol

20% on Basic Price

27% on Basic Price

VAT on Basic Price on Diesel

12.5% on Basic Price

16.75% on Diesel + 25p Cess


Analysis of above table tells that we are paying more Taxes than the Cost of Obtaining Petrol Fuel.


  1. Fuel prices are not subsidised any more:Petrol prices were deregulated on 26 June 2010. This essentially means that the market determines the prices of the fuel. Back in 2004, the prices of petrol were tightly administered by the government.


Reason for not decreasing petrol prices:

  1. The primary reason is to reduce consumption. India already suffers a lot from environmental problems with its major cities already among the most polluted in the world
  2. India like many European countries with high fuel taxes has a negative balance of trade, a chunk of which is due to oil imports.Keeping the prices high reduces the consumption and hence lowers impact.


  1. Government is making some quick bucks from excise: GDP has improved drastically as compared to last 10 years.


  1. The crude oil crash also helped the RBI build $350 billion worth of reserves, usually used to stem a rupee fall during turbulent times.


Government should decrease the prices to diesel. It will show immediate impact on common man and inflation will fall sharply. All goods and services vehicle uses diesel as means of transportation and it is widely used in business. So it will benefit common man as well as help in reducing the effective cost of goods.

Petrol is usually used by luxury class, so it won’t matter if government continues its policy of keeping its price stable and it can use really use this money for betterment of India, then it’s a good step. In future if the prices of crude oil again reaches to 130$/barrel, then it would be interesting to see how does government control the prices.


         The answer to the above question is that, we are paying extra money for per litre oil purchased. But, if   it assures that my country’s growth, then its good.