Significant factors that Influenced the Price of the Petrol in India 2020

Magazine

Samrat Pradhan (Correspondent) | Monday, 27 July 2020

Petrol price in India is revised on a daily basis at 06:00 a.m. everyday. Hence making sure that even a minute change in global oil prices information is relayed to fuel users and dealers. Price of fuel depends upon various factors including VAT, excise duty, and dealer commission. While, if we talk about VAT, it varies from state to state. Hence, the retail selling price of petrol gets nearly doubled after including VAT, excise duty, and dealer commission.

Therefore, various aspects make up the rise and decline in the price of the petrol from cost of the crude oil, global cues, rupee to US dollar exchange rate, demand for fuel, among others.

There are benefits as well as challenges of daily revision in the prices of petrol in India. For example, it enables us to easily absorb the changes in daily petrol prices in India by a few paise.

While, the daily revision of petrol prices puts a considerable pressure for the consumers. Oil marketing companies such as Bharat Petroleum, Indian Oil, and Hindustan Petroleum revise the prices of the petrol based on the international prices.

If we compare India’s price in terms of fuel, it is horribly expensive for consumers than other neighbouring countries such as Sri Lanka, Pakistan and Bangladesh. And the reason behind it is the imposition of excise duty on petrol by the government of India.

Now, lets talk in detail about the factors that attributes to the price fluctuation of petrol in India:

Cost of Crude Oil
The price in India for fuel gets higher if the international crude oil price increases. And similarly, if the price of the crude oil decreases in the international market, we will the fall in the price of petrol in India.

Hence, the price of the crude oil in the international market directly affects the price of the petrol in India, and it is on of the most important factors responsible for the increase/decrease of the price of the petrol in the country. For instance, if there is low production rate, increase in international demand, ot any political unrest in the producing countries of crude oil, it will severely affect the petrol price all across the globe.

Tax Rates
Every states has their own tax rates imposed in the petrol or any other petroleum products. Hence local government policies and other tax imposition on fuels also directly related to the price of the petrol across different regions in India.

So when the Indian government increases the tax rates on fuels, every oil organizations in India increases their price of the petrol. This is done so as to maintain marginal profits and recover any incurred losses.

Rupee to Dollar Exchange Rate
Another major factor that affects the price fluctuation in petrol is the rupee-dollar exchange rate. This is because all the Indian oil companies buy the imported oil form other countries in dollars, and while their expenses are carried out in rupee.

For instance, if the price of the crude oil declines, but the rupee remains weak as against dollar, then it will decrease the profit margin or gains of the oil refiners, and also it is same other way around.

Logistics
One of the significant factors that influences the price of the petrol is logistics. So to say, if petrol and diesel are transported to longer distances to places which is farther away from depots will be higher that the places which are closer to the oil companies storage area. This is why different states has different price when it comes to the price of the fuels.