The perception that low crude oil prices benefit consumers may not be entirely true. And here is why?

Almost ₹30 a litre is what a consumer pays to the government — Centre and States — in the form of taxes and levies on the actual retail price of petrol and about ₹15 a litre on diesel. This is excluding the dealer commission on the base price.

Despite earning higher duty and lower crude import bill, the Finance Ministry is not really minting revenues, as its public spending is on the rise.

With the continued decline in international oil prices the Finance Ministry is expected to increase the excise duty on auto fuel for the sixth time since November 2014.

Faced with a shortfall in revenues from other sectors in a still fragile economy, the government has resorted to excise duty hikes. As a result, the average consumer is paying anywhere close to ₹5-10 a litre more for the petrol and diesel he/she buys. In the first seven months of the current fiscal, the Centre’s earning from excise duty on petrol is ₹9,903 crore, nearly 58 per cent more than what it mopped up for the entire fiscal of 2014-15. Excise duty earnings from diesel in April-October 2015-16 are at ₹30,240 crore or 52 per cent more than the figure for the 2014-15 fiscal.

The figures do not take into account the fifth excise duty hike of ₹1.60 a litre on petrol and ₹0.40 a litre on diesel implemented in November 2015.

While the low crude prices have created a cushion for the Finance Ministry for oil subsidy payments, public spending has increased.

The Ministry has sought additional expenditure of ₹56,256 crore in the Second Supplementary Demand for Grants. India imported about 85 per cent of its crude oil or 85.91 million tonnes in April-September 2015 from member countries of the Organisation of Petroleum Exporting Countries (OPEC).

On Tuesday, OPEC Secretary General Abdalla Salem El-Badri said, “Low crude oil prices, a lot of people say, is good for consumers. But, this is not true. What is good for the consumers is a price where you can really invest and something that does not negatively impact the economy of the world. We are a looking for a fair price — not high or low.”

The effects of lack of investments can prove to be a major concern for a country like India.

Cheaper cost has raised the demand for petrol and diesel by nearly 4.3 million tonnes in April-October 2015 over the same period last year, according to the Petroleum Planning and Analysis Cell. This is a growth of 8.5 per cent.

Domestic refining capacity has not been able to meet the demand and in the same period imports of petrol and diesel more than doubled to 854,000 tonne. Despite weaker global prices of fuel, India still paid 57 per cent more than last year for these imports at ₹3,884 crore.

If the pace of fuel demand sustains, India would need at least two more refineries by 2017. Industry officials say refineries in India are now set up with a minimum capacity of 15 million tonne. While Indian Oil Corporation’s 15-million-tonnes per annum Paradip refinery will go on stream in 2016, there are no other expansions being planned in the immediate future by domestic refiners.

(Inputs from Richa Mishra, Surabhi)

Related Topics