Petrol Pricing in India
The Indian government introduced a new pricing method as a pilot project on May 1, 2017 in five cities, namely Pondicherry, Visakhapatnam, Udaipur, Jamshedpur, and Chandigarh. After the massive success, finally on June 16, 2017, dynamic pricing model was implemented all across the country. Under this scheme, fuel prices get revised based on the global crude oil prices and foreign exchange rates.
For the last two decades, countries like United States of America (USA), Australia, Japan, and Germany are following the dynamic fuel pricing method. Earlier, the Oil Marketing Companies used to revise their fuel prices on the 1st and 16th of every month. However, after introducing a new pricing model, fuel prices are revised every morning at 6 am.
The reason behind shifting from the Administrative Price Mechanism (APM) to dynamic pricing was to pass on the benefits to customers occurred after the global price changes.
How Fuel Industry in India Works
Companies involved in oil exploration and production extract oil in the form of crude oil. Oil exploration companies in India only fulfil 25% of the country’s oil needs. Hence, the major part of the fuel is imported in India. Oil marketing companies (OMCs) including PSUs and private companies, manage oil’s journey from crude to refined oil. Oil marketing companies pay transportation charges, freight, and crude oil prices to get crude oil. Then, OMCs pay a refinery transfer price to transform crude oil into petrol and pay excise duty before selling it to dealers. The final price of the petrol, including the dealer’s commission and taxes, is charged from the customer.
The major players in the Indian production and exploration industry are public sector companies (PSCs). Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) hold 70% of the total market, while private corporations control the remaining 30% segment.
The prominent players of this industry include Indian Oil Corporation, Bharat Petroleum Corporation, Oil and Natural Gas Corporation, Hindustan Petroleum Corporation, Reliance Industries, Petronet LNG, Adani Gas, Bharat Petroleum Corporation, Gas Authority of India Limited, Essar Oil, and BP.
Computation of Petrol Prices in India
From the price of crude oil to the final petrol prices
, many factors affect the calculation of petrol prices. OMCs pay dollars to buy crude oil and send it to oil refineries. Then, it pays freight charges and refinery charges before delivering it to the dealers. Further, dealers are charged with state and central taxes. At the end, the consumers bear the final cost, including the dealer’s commission.
Components of Petrol price
- Sales VAT–17%
- Custom Duty–4%
- Dealer Commission–2%
- Excise Duty - 25%
- Fuel Component–52%