September 17, 2011

Is the price of petrol in India very high?

I was becoming a bit concerned with all the information floating on the internet…. Emotional netizens passing on snippets on how low the prices of petrol were in other countries and how the ‘Indian Government’ was ripping the public off. So, I decided look into if all that was real and found that all of that was half cooked truth (in red). Following are the current prices in those countries-

Pakistan               Rs. 26    (88.41 PKR = 47.72 INR) May '11-- Reuters
Bangladesh        Rs. 22    (76 Taka = 48.07 INR) May '11—Reuters
Cuba                      Rs. 19    (1.15 CUC = 54.53 INR) Mar '11 -- Havana Times
Nepal                    Rs. 34    (102 NPR = 63.78 INR) June'11 -- Himalayan Times
Burma                  Rs. 30    (551.88 Kyatt = 4085 INR) Mar '11 -- Irrawady($1.45/ ltr)
Afghanistan        Rs. 36    (54 AFN = 59.1 INR) Jul '11

We need to rationalize how we compare the prices in two countries, if you want to compare say between India and Pakistan should we compare INR to PKR or convert prices to USD and compare so? The later definitely might not (for I am not too sure about economics) always give the ‘right’ picture. Let’s see if we take USD as the base and compare fuel prices across the globe as shown in the map below:

This depicts that price of fuel in India is quite low compared to the ‘Whole of EU’. So, does it mean the EU is ripping of their people ‘better’ the Indian govt is doing? In which case, we are doing better than them isn’t it? For example the cost of gasoline in UK is around 129.3p which roughly translates to around 90 INR. But, it here that the factors of per capita income or cost of living or PPP and few other reasons (DO NOT ASK ME WHAT) are missing. I am sure someone other than me can throw better light on what are all the factors?

Now for price of Petrol in A.P.
The current price after the latest revision is 74 INR per litre. The info floating on internet---
BASIC COST PER 1 LITRE 16.50 + Centre tax 11.80% + Excise duty 9.75% + Vat cess 4% + State tax 8 % = Total Rs. 50.05 + Now extra 23.35 Rs, PER 1 LITRE .

For the sake of those, I have tried to put together the break down of fuel price as follows:

International price of a barrel of Crude Oil
$ 105
Price per litre of Crude
$ 0.66
Price per litre in INR
INR 30.10
Customs/ Import duty on crude @0% (‘11 Budget)
INR 00.00
Cost of Crude Refining + Transportation + Margins
INR 09.10
Customs Duty on Petrol @2,5% (‘11 Budget)
INR 00.98
Central Excise Duty on Petrol (''11 Budget)
INR 14.50

Price of Petrol arriving in AP
INR 54.68
Sales Tax levied by AP State Govt @33%
INR 18.04
Vendor Commission (assuming @1,75%)
INR 01.30

Price Paid by the citizen (in AP)
INR 74.02

There were a few assumptions made--
1.       Current price of crude oil is considered against the avg price in India’s energy basket which stands at around 110 USD
2.       Vendor commission assumed same as neighbouring states and thus arrived at petrol price arriving in AP
3.       Indian oil companies earn an avg refining margin of $8.4/ barrel.
4.       1 Barrel = 158.99 litres
5.       1 USD = 45.6 INR (Avg conversation ratio)

From the above figures it is clear the nearly 45% of the price is due to taxes levied. Central government has been trying to get off with the taxes levied at State level, but it is being resisted by the individual state heads as the tax amount is a substantial part of the state revenues. The states that levy the highest taxes on petrol are-  AP – 33%, Punjab – 32%, Karnataka – 25%(plus 5% entry tax), Kerala – 29%, Tamil Nadu –27% (they cut 3% since May ’11)….. will see if I can get the same for rest …… big ask, better forget it!

So, the conclusion if the taxes aren’t levied the price at which “WE” can get petrol is around INR 40!! Does it mean taxation be abolished? The petroleum taxation accounts for 3.1% of national GDP and close to 16-17% of state government’s own tax revenues. And thus it becomes the case of the chicken or the egg??? Make your own inference!