India’s premium price of petrol

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Affordability

If you compare India’s prices with those of other countries, it is perhaps the only major country with a low GDP to have such high petrol prices. This makes the affordability of petrol low.

For 42-year old Brij Nandan from Delhi, abandoning his scooter for a bicycle was the only option when he was confronted with the steep rise in petrol prices

“My fuel bills kept rising steadily and once it crossed 2,000 rupees ($27.61) a month, I could no longer afford riding a scooter,” said Nandan, who supports a family of five.

Using GDP per capita at the national level and Indian Net State Domestic Product (NSDP) per capita across states as an indication of income, the chart below shows what is required to buy a litre of petrol in different countries and Indian states.

Fuel prices are not uniform across the country due to variable state taxes and transport costs.

Anirudha Bora, a truck owner from the northeastern Indian city of Guwahati, says he crosses the state border to save money.

“I drive across the road to Meghalaya state. I save about 400 rupees when I fill 100 litres of fuel,” Bora told Reuters.

Widespread protests

Protests against high petrol and diesel prices paralysed many parts of India this week, shutting businesses, government offices and schools. The government blamed the high pump prices on the rising cost of crude oil and a weakening rupee.

Most of the time, the differentiating factor is the tax

States like Andhra Pradesh, Rajasthan and West Bengal this week cut taxes on fuel to reduce the burden, but the federal government has so far not done so.

Taxes on petrol and diesel, which account for more than a third of retail fuel prices, are one of the biggest sources of income for state and central governments.

In Mumbai – where petrol is the most expensive – more than half of the petrol price goes to taxes. Contrast that with Port Blair, where petrol is cheapest in the country – almost 30% of the total cost goes in tax.

Taxes have climbed since crude prices fell

The government increased taxes when crude oil prices fell. This meant that the effective price to the consumer remained similar. The extra income may have helped the government through a tough financial year in 2017.

However, with rising crude oil prices since late last year, the high taxes have been biting the consumer.

Double taxation

Since state tax is applied on the price after federal tax, in cities like Mumbai and Jalandhar, that have high state taxes, as much as 10 percent of the total cost is actually “tax on tax”.

Surendra Singh, 69, a resident of Sambalpur town in Odisha owns three trucks which have All India permits and mostly carries materials from industrial plants.

“To manage loss, our preference has been to send trucks to those states where the cost of fuel is lower so that we save money,” said Singh, whose family has been in the truck operation business for more than 50 years.

West Bengal was one of the few states which had reduced the sales tax on diesel and petrol following the protests.

“This will give at least some respite to the consumers,” Chief Minister Mamata Banerjee said on Tuesday.

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