With the ease in nationwide lockdown and economic activities picking up, oil marketing companies (OMC) have increased petrol and diesel prices for 11 consecutive days to Rs 6.02 per litre and Rs 6.40 per litre respectively.
The reason why OMCs are increasing prices every day is to match the petrol and diesel prices to international product prices and make up for the margins that are lost on account of the increase in exchange rates, steep increase in crude prices.
The prices are also pinching the common man as many states have increased value added tax (VAT) and the central government has raised excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre respectively.
The petrol, diesel prices were frozen across cities from March 16 until June 6, from when the unlocking began post over 80 days of strict lockdown due to the coronavirus led pandemic.
In between, Indian crude basket prices crashed to $19.9 per barrel in April against $33.3 per barrel in March and it is now hovering around $40.21 per barrel as on June 17.
The benefit of low crude price was shadowed by VAT increase by states and Rs 10 per litre and Rs 13 per litre increase in excise duty hiked by the central government through the lockdown.
The consumption of petrol in FY20 came down to 6 percent from double-digit growth since FY15. Similarly, diesel consumption growth was negative 1.1 percent in FY20 against 3 percent growth last year and 1.5 percent growth 5 years back. The demand for petrol and diesel has picked up above 82 percent since the lockdown has ended.
Auto fuel consumption March-May, 2020
(% Comparison from March 2020)
The major part of the fuel prices which you see every day comprises of about 66 percent of VAT and excise duties, and rest 34 percent majorly comprises of fuel and freight cost and dealer margins.
Delhi fuel price breakup as on June 16 (Rs/litre)
Base price + freight
Retail Price (Rs/lt)
With pick up in manufacturing and aim to boost growth, some experts are of the view that an increase in fuel prices may have an inflationary impact.
However, the RBI in its last Monetary Policy Committee said, "The meltdown in demand is also likely to result in a significant easing of price pressures in core goods and services. Weak demand conditions in the presence of strong favourable base effects could result in headline inflation falling below the target rate during Q3 and Q4 of 2020-21."
Meanwhile, sources in the government indicate that any cut in excise may only happen if the crude starts to trade at a very high price or when the election announcements are made for Bihar assembly.
First Published: IST