Understanding Petrol Pricing in India [Explainer Video]
[Editor Notes: I have frequently come across these questions by many – If Global crude prices have fallen so much, why have the fuel prices not gone down in India? Or, many people ask why is Petrol/Diesel so expensive in India? This article and explainer video created jointly by Factly and inShorts will try to give you an idea in this regards. Have a look. If you have any questions, do post in comments, and we will be happy to answer them!]
The price of Petrol & Diesel affects almost every Indian directly or indirectly. Such is the importance of these two that any increase or decrease in their price is widely discussed. Ever since de-regulation of petroleum prices, the prices change every fortnight based on the changes in the price of crude oil and changes in tax rates. While people at large follow pricing of these two commodities, they do not understand the structure of pricing, the components that add up to the final price. Therefore, Factly & Inshorts decided to demystify the Petrol pricing through a short explainer video that captures all the components that collectively determine the final price of petrol to the end consumers.
The Retail Selling Price (RSP) of Petrol
Retail Selling Price (RSP) of Petrol is determined based on a lot of factors. The average price of Crude Oil of the Indian Basket is calculated every fortnight. This price is calculated in dollars per Barrel. The price in Indian rupees is also dependent on the average exchange price for that fortnight.
Crude Oil to Petrol
The Crude Oil is transported and refined to extract Petrol. The cost & freight charges, refinery charges are added to the price of Crude oil. This is called the Refinery Transfer Price (RTP). In other words, this is the price paid by OMCs (Oil Marketing Companies) like IOCL, BPCL & HPCL to the refineries. OMCs retain some margin and sell it to the Dealer (the owner of the Petrol Pump).
There are broadly two different taxes, the Central Excise Duty (imposed by the Central Government) and the State VAT (Value Added Tax). These two taxes are added to the Price that is charged to dealers. The current excise duty is Rs 21.48 per litre of petrol. VAT varies from state to state. In Delhi, the VAT percentage is 27%. The dealer commission is also added to the price after imposition of the Central Excise.
All these prices add up to the final Retail Selling Price (RSP) of Petrol that reaches the consumer. There are differences in the price in various states because of the different VAT rate. The price also varies between a pump owned by different OMCs. These minor differences are because of the variations in margins & dealer commission.
This entire process is explained in this short 75-second video.
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