Fuel prices have long been a source of concern for both customers and businesses, having an effect on numerous aspects of everyday life and the economy as a whole. Higher fuel prices are a result of the impact of the exchange rate as well as the pricing system that links fuel prices to the dollar.
However, it is intriguing to note that Andhra Pradesh and Madhya Pradesh, two prominent states in India, showcase significant differences in fuel prices despite being part of the same country and sharing the national oil pricing framework. Why is it? There is a consensus of reasons like state levied tax, retailer commission, poor transportation system, and excise duty taxes, which can be held responsible.
Top Reasons Behind the High Price of Fuel in Andhra Pradesh Over Madhya Pradesh
Andhra Pradesh is a state which is close to Madhya Pradesh, and yet the fuel price is always at least INR 3 higher and often even more. Some of the most important reasons why the fuel price in Andhra Pradesh is more than the fuel price in Madhya Pradesh are:
Varying Degrees of State Tax
Fuel prices usually include several components, such as excise duty, value-added tax (VAT), and dealer commission. From state to state, VAT varies. When these factors are added to the base price of the fuel, the retail selling price of petrol is significantly increased, often close to double the base price.
As in the case of Andhra Pradesh, they have levied a very high tax rate. Even after other states like Madhya Pradesh had reduced the tax percentage, the fuel price in Andhra Pradesh remained high due to the imposition of a relatively high tax rate.
Andhra Pradesh is one of the very few states that charge a VAT as high as 31% over the base price of petrol. Besides, the state government has been collecting an additional VAT of INR 4 and a cess of INR 1, apart from the 31% on petrol. In addition, fuel prices include excise duty and dealer commission. All these contribute to high fuel prices.
Faulty Transportation System
There has been a lot of discussion in the past about the faulty transportation system of Andhra Pradesh. The state's high fuel prices result from the transportation infrastructure's inefficiencies, which also impact the system's overall quality.
The presence of numerous problematic transportation areas exacerbates the situation. These areas experience issues such as inadequate road networks, poor maintenance, and traffic congestion, all hindering smooth and efficient transportation and increasing transportation costs.
The cost of transporting fuel from the refinery to the retail location can also affect fuel prices. Hence, high costs related to transportation, tolls, and other expenses contribute to the overall increase in fuel prices in Andhra Pradesh.
Retailer commissions, which are set by individual fuel retailers, can differ between the two states, leading to disparities in fuel prices. Andhra Pradesh is different from most other states, with a strong market with several big competitors. One of the major reasons why the fuel price in Madhya Pradesh is lower is because the retailer commission is standardised and agreed upon.
However, due to the government's refusal to reduce the VAT on fuel, there has been a significant change in the retailer commission structure in Andhra Pradesh. This has led to a more unpredictable and haphazard commission system, resulting in higher fuel prices in the state.
High Crude Oil Prices
Fuel price in Andhra Pradesh is based on the daily dynamic fuel pricing method. Factors including taxes, currency rates, and crude oil prices heavily influence the price of fuel.
As we all know the global situation, there is quite a shortage of crude oil. This is one of the major reasons the price of crude oil is so high, automatically impacting the fuel price. Fuel prices in Andhra Pradesh have become increasingly volatile due to the consistent trend of crude oil prices.
Hence, the base price and the situation in Andhra Pradesh make it more expensive. There is a high chance that if the crude oil's base price decreases, the fuel price in Andhra Pradesh will also go down. However, this seems impossible shortly.
And finally, when it comes to the fuel price in Andhra Pradesh compared to the fuel price in Madhya Pradesh, it is important to focus on the geopolitical risks as well. The political situation of Andhra Pradesh is extremely volatile, and it is in complete contrast with that of the centre.
This is one of the major reasons there is no parity between the centre's and the state's prices. The political situation of the state and the ongoing war between Russia and Ukraine are major reasons why fuel prices have increased globally. This automatically makes the price go higher in a state like Andhra Pradesh.
In conclusion, fuel prices in Andhra Pradesh are higher than in Madhya Pradesh due to factors such as high state tax rates, a faulty transportation system, varying retailer commissions, high crude oil prices, and geopolitical risks. These factors contribute to the disparity in fuel prices within the same country.
If you are interested in knowing more about fuel prices in Madhya Pradesh compared to Andhra Pradesh, you can download the Park+ app. The app is extremely easy to use, and you can easily get all the relevant information under one app.