The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.
Yash Malani, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur
Following a slump in crude oil prices from last 22 months, the basket of crude oil that India buys averaged USD 106.85 per barrel in May 2014 and this month it is averaging at USD 29.80.
But the same is not replicated from Petrol and Diesel prices. Even after over 70% fall in crude oil prices, the price of petrol which was Rs 71.41 per litre in May 2014 has witnessed only 16% decline and remains at Rs 59.95 per litre today. Similarly, diesel cost Rs 55.49 a litre in May 2014 and this month it is available at Rs 44.68 per litre with 19.5% decline.
One of the major reasons is increase in Excise duty charged by the Government. Since May 2014, the government has raised excise duty on petrol by Rs 12 per litre and by Rs 10.21 a litre on diesel. Excise duty on petrol on May 2014 was Rs 9.48 per litre and today it is Rs 21.48 a litre. Similarly, the same on diesel was Rs 3.56 a litre and this month it is Rs 13.77 a litre.
Retail selling price (RSP) of petrol and diesel in the country are based on their respective international prices and oil marketing companies (OMCs) are at present applying Trade Parity Pricing methodology to compute the RSP.
Other than the Excise duty charged by central government, many state governments have also increased VAT on Petrol and Diesel.
Major portion of pricing for Petrol and Diesel is dependent on Refining of Crude Oil and transportation of crude oil and Petroleum products. Even though the crude oil prices have decreased drastically, the refining and transportation charges have remained almost constant.