Fuel prices play a crucial role in our daily lives, affecting everything from transportation costs to household budgets. You may have noticed that fuel prices vary between different states in India, with Assam often experiencing higher prices compared to Madhya Pradesh. Let us share with you the technical and policy-related factors that contribute to this price disparity.
By understanding the underlying dynamics, tax structures, and state-specific policies, you will gain valuable insights into why Assam's fuel prices are higher than those in Madhya Pradesh. Here are some key factors affecting fuel prices in Assam and Madhya Pradesh.
Tax Structure and VAT Percentages:
Assam: One significant factor influencing fuel prices in Assam is the state's tax structure, primarily the Value Added Tax (VAT) imposed on petrol and diesel. Assam has a higher VAT rate compared to Madhya Pradesh. As of September 2021, Assam levies a VAT of 32.66% on petrol and 24.56% on diesel, which significantly contributes to the higher prices experienced by consumers in the state.
Madhya Pradesh: In contrast, Madhya Pradesh has a relatively lower VAT rate on fuel. As of September 2021, Madhya Pradesh charges a VAT of 28.68% on petrol and 22.13% on diesel. The lower VAT rates in Madhya Pradesh result in comparatively lower fuel prices at retail outlets.
Assam: Assam follows a policy known as the Additional Duty of Excise (Road Infrastructure Cess) on petrol and diesel. This policy imposes an additional duty of excise, contributing to the higher prices of fuel in the state. Additionally, the Assam Government's decision to charge an additional cess to finance road infrastructure projects further adds to the cost of fuel.
Madhya Pradesh: Madhya Pradesh has implemented a policy called the Pradhan Mantri Ujjwala Yojana (PMUY), which aims to provide subsidized LPG cylinders to households below the poverty line. This policy incentivizes the state government to keep fuel prices relatively lower to ensure affordability for beneficiaries of the scheme.
Transportation Costs and Logistics:
Assam: The geographical location of Assam poses logistical challenges in terms of fuel transportation. The state is situated far from major depots, necessitating longer transportation distances and higher associated costs. The reliance on road transport for fuel distribution in Assam further adds to the expenses, considering the need for well-maintained roads and efficient logistics infrastructure.
Madhya Pradesh: It benefits from its favourable geographical location, with proximity to supply hubs. The shorter transportation distances reduce the costs involved in bringing fuel to the state, resulting in comparatively lower fuel prices. The availability of pipelines and efficient transportation networks facilitates cost-effective fuel distribution.
Refinery Locations and Access to Crude Oil:
Assam: Assam has limited access to crude oil reserves compared to states like Gujarat and Rajasthan. The dependence on crude oil imports from other regions and the need for transportation from refineries located elsewhere can contribute to higher fuel prices in the state.
Madhya Pradesh: Madhya Pradesh does not have significant crude oil reserves either. However, it benefits from proximity to refineries in nearby states like Gujarat and Maharashtra. This proximity reduces transportation costs and ensures a steady supply of refined fuel, contributing to relatively lower fuel prices.
Understanding why Assam experiences higher fuel prices compared to Madhya Pradesh involves considering various factors, including tax structures, transportation costs, and state-specific policies. The higher VAT percentages, state-specific policies, transportation expenses, geographical challenges, and limited demand contribute to the price disparity. As a consumer, being aware of these factors and their impact on fuel prices in different states can help you make informed decisions.
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