Why is fuel so expensive in India?
It’s no secret that fuel prices in India are amongst the highest in the world. Its importance, of course, can’t be dismissed. We depend heavily on crude oil for various modes of transport, showing that India is the world’s third-largest unsophisticated oil consumer.
The trouble begins with the fact that we produce far less than our demand and rely heavily on importing crude oil. How heavily? In 2020-21, we imported 198 million tonnes and made a meagre 31 million tonnes. But it’s not as simple as demand outstrips local supply. To elaborate, at the time of writing, the cost of an oil barrel in the international market is about Rs 59/litre. So why, then, are we paying nearly double that amount for a litre of petrol or diesel?
Once you factor in the costs of bringing the fuel, it becomes apparent. There are freight charges, dealer commissions, VAT, and excise duty that the government levies. As per the credit rating, the government charges about 167% tax on petrol and 129% on diesel. Comparatively, the US government charges 20%.
