It is supposedly market-driven pricing, but over the last around nine weeks, state-run oil marketing companies (OMCs) haven’t let the decline in crude oil prices benefit consumers. Instead, these firms have just made higher margins on the sales of auto fuels.
OMCs haven’t reduced the prices they charge the retailers for the diesel and petrol since November 4, so their marketing margins on the two fuels have risen to around Rs 9/litre or roughly 30% from the October level, analysts said. The price of Indian basket of crude fell from the level of $83.7/barrel on November 2 to $74.6/barrel on December 28 (see chart).
“If OMCs could maintain such margins till the end of January, they could report Q4 average margins above normative levels despite major elections in Punjab and Uttar Pradesh in Feb-March, unless oil prices spike,” analysts at Emkay Global wrote.
The end-consumers got marginal relief after the Centre, on November 3, announced excise duty cuts of Rs 5/litre on petrol and Rs 10/litre on diesel, lowering retail price of petrol from an all-time high of Rs 110.04/litre to Rs 103.97/litre while diesel rates dropped from Rs 98.42/litre to Rs 86.67/litre (in Delhi). Petrol price dropped further in the national capital after the state government reduced value added tax (VAT) on the fuel on December 1, bringing the rate of Rs 95.41/litre. There was no change on diesel VAT in Delhi. Since then, the rates in Delhi have been kept unchanged till December 29 as the rates charged by OMCs dealers remained unaltered. Indian Oil (IOL) charges Rs 48.23/litre to the dealers for petrol and Rs 49.61/litre for diesel at present.
Several states and Union Territories, mostly run by BJP, had reduced the VAT rates following the Centre’s decision to cut excise duty on auto fuels. The central excise duty cuts had brought down the central taxes on petrol and diesel to Rs 27.9 per litre and Rs 21.8 per litre, respectively. In March and May 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13 per litre on petrol and Rs 16 per litre on diesel, leading to record-high auto fuel rates.
Much like the current situation, OMCs had not hiked auto fuel prices in conformity with the global crude movements between late February and May in the run up to Assembly elections in four states and the UT of Puducherry. Between January and April, petrol price (in Delhi) had increased around 8% while the cost of crude had grown about 25%.
Ostensibly to recover their marketing margins, retail petrol prices were kept unchanged (at Rs 101.84/litre in Delhi) between July 17 and August 21, while global crude corrected from around $73/barrel to about $65/barrel in the same period. This had helped OMCs improve their marketing margins to Rs 3.2/litre and Rs 4.6/litre for petrol and diesel, respectively, analysts had said.