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Increasing Petrol Prices May Soon Touch Rs 100

IndianMoney.com Research Team | Posted On Thursday, September 27,2018, 06:29 PM

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Increasing Petrol Prices May Soon Touch Rs 100

 

 

The prices of Crude oil have been steadily rising, with experts claiming that it may reach $100 a barrel by the end of the year or early next year. As of 26th September, the petrol price in Mumbai was Rs 90.22, an increase of 15% since the beginning of the year, and 7% increase in just the last two months. Prices in other cities of the country show a similar story – Bangalore Rs 83.52, Delhi Rs 82.86, Chennai Rs 86.26, Kolkata Rs 84.68 and Hyderabad Rs 87.99.

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Increasing Petrol Prices May Soon Touch Rs 100

The US sanctions on Iran have seen a reduced oil supply of nearly 2 million barrels per day in the market, causing the prices to shoot up. The US refuses to bring emergency reserves into the market. India imports most of its crude oil, and being one of the biggest importers of Iranian Crude, is facing the repercussions of this hike in prices. With such a steep incline, it’s not hard to imagine the oil prices reaching the three figure mark in the near future.

While the rising petrol prices have been burning a hole in the common man’s pockets, petrol pumps are facing a unique problem of their own. For the first time in the nation’s history, petrol pumps are preparing to display a three figure rate.

Without any intervention by the government to control the prices, petrol pumps must brace themselves for the Rs 100 mark. Currently, older petrol pumps are not equipped to display rates above Rs 99.99 per litre. Even when the price rises beyond Rs 100, the display shows only the amount in excess of 100, simply because they haven’t been calibrated to show rates of Rs 100 and above. With regular petrol prices inching towards the Rs 100 mark, petrol pumps must either get new machines or update the old ones to show the correct rates.

Why is the petrol price so high?

Let’s see the breakup of the taxes and commission that make up the retail price of petrol:

Price (Rs/ltr) breakup of petrol in Delhi, 24/09/18

Price charged to Dealers

41.99

(+) Excise Duty

19.48

(+) Dealer’s Commission

3.66

(+) State VAT

17.59

Retail Selling Price of Petrol

82.72

 

Dealers are charged just Rs 41.99 per litre of petrol, and then excise duty and VAT add up to Rs 37.07, with the dealer’s commission of Rs 3.66 added to make it Rs 82.72 for the final consumers.

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How can Petrol Prices be Reduced?

With the prices sky-rocketing, there doesn’t seem to be any respite for consumers. Even though states like Andhra Pradesh, Karnataka, Rajasthan, and West Bengal have slashed VAT rates in order to cut down on the petrol prices, the Central Government can’t afford to take such drastic measures. With the Indian Rupee sliding to all-time lows, the government is hesitant to cut down on the excise duty imposed on petroleum products. At a time when the Rupee is depreciating, cutting taxes will fuel the fiscal deficit and hit funding for development projects. If taxes can’t be reduced, what else can be done to reduce the impact of the rising petrol prices?

Petrol and Diesel continue to be outside the ambit of Goods and Services Tax (GST), and many believe that bringing petrol under the new indirect tax regime will significantly reduce the prices. The Union Oil Minister Dharmendra Pradhan is of the view that bringing petrol under GST will bring down the prices by half. Devendra Fadnavis – the Chief Minister of Maharashtra, the state with the highest tax on petrol and diesel, has also openly supported fuel being brought under GST to provide a lasting solution to the problem of growing fuel prices.

Dealers have also hinted at cutting down on the import of petrol to ride out the high prices in the International market. With experts forecasting crude to rise to $100 by the year end, India, which is the third largest oil importer is planning on reducing imports and relying on its own stock of crude reserves. Sanjiv Singh, Chairman of Indian Oil, has confirmed reports of the planned cut down on imports.

Petrol used for vehicles is blended with either Ethanol or Methanol. At present, vehicles in India use up to 10% Ethanol –blended fuel. A 15% methanol blend will see prices drop by 10%. While Ethanol costs Rs 42 a litre, the price of Methanol is approximately Rs 20 per litre. A reduced cost of raw materials will have a direct impact on the final product and see prices drop by as much as 10%. The NITI Aayog or National Institution for Transforming India, which is a policy think tank of the Government of India, is looking to pass a cabinet ordinance that makes it mandatory for vehicles to run on petrol blended with 15% Methanol.

Indian auto makers Tata and Mahindra have come out with electric cars that do not require any petrol or diesel to operate and a few of the foreign brands have already introduced hybrid models. While India is yet to catch up with the rest of the World, where big brands like Tesla are revolutionizing the automobile industry, this is a great beginning for the Indian market. Adopting electric cars and trading the traditional petrol run vehicles for electric ones will ensure the customer saves a sizeable amount on fuel.

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