Even as the international crude oil prices have slumped by over 60% since June last year, there has been no corresponding decline in petrol and diesel prices in India and consumers are not enjoying the full benefits of cheaper crude oil prices.
Petrol prices in the country have come down by just 20% to Rs 60 per litre in December 2015 as compared to Rs 75 per litre in June 2014. In the same period, Brent crude oil prices have declined from above $110 per barrel to $44 a barrel.
While fluctuations in the exchange rate is one of the key reasons for lack of equivalent decline in petrol prices, the Modi government's move to hike taxes on fuel prices to increase its revenues has also denied huge savings for consumers from a fall in global crude oil prices.
Rupee movements play a key role in determining the petrol and diesel prices in India, as the county meets 80% of its oil needs through imports.
The rupee was trading around 60 against the US dollar in June 2014 when the global crude oil started declining. But the rupee currently trades at two-year low of over 67 per dollar, depreciating by more than 10% in the past 18 months. The sharp depreciation in the domestic currency is making oil imports costlier even as crude oil prices remain subdued.
On the other hand, the Modi government has been steadily increasing taxes on petrol and diesel prices since it came into power in May last year. While the government could take advantage of cheaper oil prices, consumers have not seen any significant savings.
Since May 2014, the excise duty on petrol and diesel has been hiked by more than 100% by the government. While the duty on petrol prices stood at Rs 9.48 per litre in April 2014, it got more than doubled to Rs 19.06 now. Similarly, the excise duty on diesel has been increased to Rs 10.66 from Rs 3.65 per litre in April last year, NDTV Profit reported.
While a litre of petrol costs Rs 60.48 in Delhi, nearly a third of it is paid to the government in the form of excise duty apart from Rs 12.10 for local sales tax or VAT. After adding company margin, petrol pump dealers commission and taxes, petrol prices are now priced a Rs 60.48 per litre, even as the production cost of petrol is only Rs 23.77 per litre.