The meteoric rise in crude oil prices in the International markets is affecting India's fuel and diesel costs as well. Thus, burning a hole in the average man's pocket. Additionally, the major part of what you pay for petrol or diesel goes to the Centre and states as taxes. As the state tax rates differ, the retail selling prices vary across the country. Further, there is a difference across cities based on distance from oil depots.
Andra Pradesh and Telangana, both register themselves in the top 5 states with the highest fuel prices in India, alongside Maharashtra, Rajasthan, and Madhya Pradesh. But on comparing minutely, the fuel prices in Andhra Pradesh are higher than in Telangana. Why is that? Let�s find out!
Factors Responsible For Fuel Prices
Fuel prices, such as petrol and diesel, are regulated in India via a dynamic pricing process known as the "daily revision of fuel prices". The pricing scheme, which was implemented in June 2017, is dependent on international crude oil prices, exchange rates, taxes, and other variables, that differ from one state to another.
International Crude Oil Prices
The cost of importing crude oil is the first component. Because India relies largely on imported crude oil, the prices are determined by international crude oil prices. Global factors such as supply and demand, geopolitical events, production levels, and market speculation all influence these prices.
Dealer Commission
The commission or profit margin of fuel merchants or oil marketing corporations (OMCs) is also factored into fuel prices. OMCs in India include Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL).
Dealer costs
The profit margins earned by fuel retailers in the fuel supply chain are referred to as dealer costs or dealer margins. OMCs such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) supply fuel to fuel retailers or dealers. The OMCs sell fuel at a set wholesale price to dealers.
After purchasing fuel from the OMCs, the dealers add their profit margin or dealer commission to the wholesale price. This margin covers the dealers' numerous expenses, such as operational costs, maintenance, staffing, and the intended profit.
Exchange Rates
Because crude oil is traded in international markets in US dollars, the exchange rate between the Indian Rupee and the US Dollar has an impact on the final price of fuel. Thus resulting in high prices of fuel.
Central Excise Duty
In India, the central government has the jurisdiction to set and amend excise tax rates on fuel goods. These rates can be altered regularly based on a variety of reasons such as revenue requirements, government policies, and economic situations.
Changes in excise duty rates have an immediate influence on the ultimate retail price of petrol because the tax is passed on to customers. At present, the central excise duty is 20% of the price of fuel.
Taxes By State
VAT is an indirect tax that is added to the cost of products and services at each stage of production or distribution. In the case of fuel pricing, state governments in India charge VAT. Each state is free to set its VAT rates on fuel items such as petrol and diesel. VAT rates can differ between states, and the specific rates can be subject to periodic modifications by state governments.
The VAT on fuel prices helps to determine the ultimate retail price that customers pay at petrol stations. It is a significant source of revenue for state governments, assisting in the funding of different developmental and administrative needs.
Reasons For Higher Fuel Prices in Andhra Pradesh than in Telangana
Here are the two main reasons for high fuel price in Andhra Pradesh
The VAT for fuel prices in Telamgana is 35.2%, as compared to 38.93% in Andhra Pradesh. This results in Andhra Pradesh�s fuel price to be marginally higher than that of Telangana. being
The state government of Andhra Pradesh increased the VAT on certain items, post the COVID-19 pandemic to cope up with the loss of revenue in the pandemic era.
Conclusion
Fuel prices are determined by a variety of factors. They are constantly changing in response to global trends. Rising fuel prices affect the whole economy. It can be felt by everyone, either through increased transportation costs, or inflation pressures. These in turn lead to economic implications, such as lower consumer spending, which influence overall economic growth and slow down economic activity.
There can also be positive implications, such as a shift towards cleaner and greener transportation options, such as electric vehicles or public transportation networks. Such a shift can have long-term environmental benefits. To keep yourself with more such info check out the fuel price page on Park+. You will find that Park+ is your one-stop destination for all your car-related needs and information. Visit the Park+ website, or download the Park+ App to get answers to all your car-related queries.