Petrol/Diesel Prices: UPSC Daily Important Topic | 28 March 2022

Petrol/Diesel Prices

Government has officially deregulated the petroleum products market and the price of petrol/diesel is decided/changed by the market forces on a daily basis based on an average of the previous 15 days’ global prices of the crude basket.

Central Govt. imposes Customs Duty on import of crude and Excise Duty on processing of crude and States impose VAT on sales of petrol/diesel. And these fuel are sold by Oil Marketing Companies (OMCs) like IOCL, BPCL, HPCL which are government controlled and few private players also like Reliance/Adani.

Although on paper/officially the prices of petrol/diesel are decontrolled but generally when the crude oil prices goes too down then Government increases the Excise/VAT tax (during Covid, crude fell to around $20 per barrel but retail priced did not come down much) and when the crude price goes up then it decreases the tax. So, generally you will not see the impact of crude price change reflecting in retail petrol/diesel prices.

But if Govt. is changing the tax rate, to smoothen the prices then you cannot say that Govt. is controlling the prices, as Govt. has full freedom/right to change the tax. BUT sometimes, when crude prices increase steeply and Govt. is not willing to reduce taxes and it also does not want retail prices to go up (because of elections as as was the case in the last one month) then it indirectly/unofficially forces OMCs like IOCL/BPCL/HPCL (which are controlled by Govt.) to not increase the prices which leads to loss of profit and pricing freedom to the OMCs. And this loss of profit or just loss is called “under recovery” of OMCs. When OMCs do not increase prices then private retailers can also not increase the fuel prices because of competition.