How Fuel Prices Are Determined In India
International crude oil prices, refining costs, taxes and levies, transportation and distribution costs, and dealer commissions are all factors that affect fuel prices in India. The government controls fuel prices to maintain market stability while also taking into account fluctuations in the global market. Understanding the computation procedure can give important insights into the causes of fuel price fluctuation.
Factors Influencing Indian Petrol Prices
The following is a list of a few key factors that significantly affect the price of fuel in India:
Cost of Crude Oil: Unrefined crude oil is used to make fuel and diesel. The cost of fuel and diesel in India is directly impacted by global crude oil prices. The cost of crude oil is determined by factors including global supply and demand, future reserves, international relations, etc.
Refining Costs: The cost of refinement is a major factor in deciding the final price of fuel. The cost of refining crude oil into different petroleum products including petrol, diesel and liquefied petroleum gas (LPG) is incurred by refineries. The retail price of fuel is influenced by these expenses, including the refining margin.
Distribution and Transportation: Transporting fuel from refineries to retail locations across the nation involves transportation and distribution expenditures. The cost of storage, transportation, and logistics are taken into account when determining the price of fuel.
Rupee to Dollar Exchange Rate: The exchange rate of the rupee and the dollar has a direct impact on the cost of petrol. Since almost 80% of the oil consumed in India is imported, the value of the rupee also has a significant impact on the cost of petrol. The price of petrol increases with the depreciation of the rupee against the dollar.
Why Do Fuel Prices Vary From State To State?
In India, fuel costs might range between states. The various VAT rates imposed by state governments are the main cause of this difference. Regional price disparities are also influenced by logistics and transportation expenses. States like Rajasthan and Madhya Pradesh have higher value-added tax rates, at 33% and 36%, respectively. Maharashtra also adds Rs. 10.12 per litre of tax to the cost of fuel in addition to the 26% VAT.
Process for Calculating Fuel Prices
In India, there are several procedures and components involved in the computation of fuel pricing. To grasp the process better, let's get deeper into it.
Cost of Importing Crude
The price of crude oil on the global market, transportation costs, insurance premiums, and handling costs are only a few examples of the variables that go into the cost of importing crude oil. These expenses are then converted to Indian Rupees.
Price of Refinery Transfer
Companies that market oil buy crude oil and refine it into different petroleum products. The cost of refining and the refining margin is included in the refinery transfer price.
Levies by the central government
Petroleum products are subject to excise tax levied by the federal government. The government periodically adjusts the excise duty rate, which is dependent on the refinery transfer price.
Taxes levied by the state
Fuel is subject to state-specific VAT that varies from state to state. The transfer price to the refinery plus the excise tax levied by the federal government are added together to determine the VAT.
The commission paid to fuel merchants in exchange for their services is represented by the dealer margin. After taking into account the cost of importing crude oil, the price of transferring oil from refineries, central government levies, and state government taxes, it is added to the cost of fuel.
Understanding how fuel price is calculated in India, clarifies the causes of changes in fuel prices. It is possible to gain insights into the dynamics of this significant area of the Indian economy by keeping an eye on the many elements and procedures involved in fuel pricing.
The fuel price in India can be changed every day so it's hard to keep a check on the prices. If you want to keep yourself updated about the price of fuel in India you can do so by downloading the app Park+.This app will not only help you check the fuel price but can also help you with many other vehicle-related questions and services.