Diesel Pricing in India

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Diesel Pricing in India

The Government of India has implemented a new scheme with effect from June 16, 2017, under which prices of fuel will be revised every morning at 6 AM. This move was made considering the huge leaps in prices at the end of the fortnight. The shift of price mechanism from administrative pricing(APM) to dynamic pricing was done to ensure that the benefit of the smallest change in international oil prices can be put into effect by dealers.
India has joined the select nations of fuel pricing of US and Australia, where fuel prices move in alliance with the price of crude oil. A pilot scheme was launched in five cities of Jamshedpur, Chandigarh, Puducherry, Udaipur, and Vishakhapatnam.

Today’s Diesel Price for Major Cities in India ( Compare With Yesterday)

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Key Highlights of Diesel Price Trends in India for December 2019

The rates of diesel are revised on a daily basis. Every day at 6.00 AM the prices are being revised as per the new dynamic fuel pricing system. The diesel prices are very sensitive to global crude prices. The fuel price includes dealers commission, VAT (Value Added Tax). Post adding all the elements the price is close to double the original price.

Effect of Fuel pricing on Indian Economy

A lot of speculations arose and many researchers mulled over the various pros and cons it would have in the country’s economy. Let us have a quick understanding of it:
  • The three-state owned oil marketing companies- Indian Oil Corporation (IOC), Bharat Petroleum Corporation and Hindustan Petroleum Corporation have around 90 percent share of the Indian Fuel Market. These oil companies would be able to forecast their net revenues well in advance, as different from the current scenario.
    The life of oil companies in India became easier by the introduction of dynamic fuel pricing which removed the speculative aspect of determining long and short-run price prediction and forecasting.
  • According to experts, it will have a negligible effect on consumers.
    It is important that the oil prices to remain stable, which does not majorly impact both the oil companies and consumers.

The effect of Pricing in Indian Oil Giants

The effect is certainly positive. The oil giants will no longer depend on fluctuating currency conversion rates to determine their profits.
Generally, oil companies have a backing of funds to maintain a balance in the difference of crude oil prices globally and that of actual rates in which it is sold to customers. The incoming of dynamic fuel pricing into effect will decrease the maintenance and expense of those backup hedge funds. This eventually will result in an increase of 5-7% in revenues.

Effect on Consumers

It may affect the consumers only when there is a major international event, like a war or riots. The prices may fluctuate and it might become expensive or cheap depending on the nature of the incident. The difference won’t be much more on average.

Factors affecting fuel pricing in India

Increase in Demand :-

The rise in the number of vehicles running in the road has increased in the past years contributed to the increased fuel prices in India.

Logistics :-

It is the major reason why diesel prices are different in cities across India. Cities, where fuel is transported to longer distances, will be highly-priced than to the places which are nearer to the oil companies’ storage area.

Exchange Rates :-

It is also one of the major factors affecting fuel rates in India. For importing oil from other countries, Indian Oil companies have to pay in Dollars but its expenses are in rupees. Hence, if the rupee rate plunges a large amount will have to be paid for the USD.

Tax Rates :-

The local government policies which impose taxes vary. Therefore, when the Government of India raises tax rates, the petrol prices also increase.

Cost of Crude Oil :-

The price of fuel in India is directly related to the crude oil price Internationally. Any change internationally changes the pricing in India. An increase in international demand, low production rate or any kind of political unrest affects the pricing tremendously.

Demand-Supply Mismatch :-

An increase in supply directly affects the fuel price. For up to six weeks the oil refining and marketing companies maintain crude oil inventory, which also directly influences the price of fuel.

Components of Diesel Pricing

Diesel prices have four components. Below we will be discussing them in detail
Central Excise Duty :-

The Central Government levies the Central Excise Duty. It is not a percentage on the price but a fixed amount.

Price Charged to Dealers :-

The OMCs or Oil Marketing Companies charge this price to dealers. The price decision is arrived at based on other factors like the exchange rate of US Dollar, price incurred on refining price incurred on freight, global crude oil price of Indian basket, etc.

Dealer Commission :-

The commission paid by OMCs to the petrol pump dealers is known to be the dealer commission.

State Specific VAT/Sales Tax:-

The Sales Tax or the Value Added Tax is levied by the State Government on the price of diesel, by adding dealer price, Central Excise Duty and Dealer Commission.