Oil marketing companies (OMCs)' decision to put off a petrol and diesel price hike on September 15 despite the firming up of average prices in the international market in the previous fortnight shows the government's fuel price deregulation drive remains only on paper.
The average cost of gasoline, against which petrol is benchmarked in India, had risen to $61.42 a barrel in the first half of September from $60.15 in the second half of August, according to a report. The rupee has averaged 66.37 to a dollar during September 1 to 15 opposed to Rs 65.70 to a dollar in the previous fortnight. So, the cost of petrol would have gone up by 98 paise and diesel price by Rs 2.28 a litre in Delhi. The price hike might have been deferred due to the impending Bihar elections, according to media reports.
Defending the decision to postpone revision, Indian Oil Corporation (IOC) chairman B Ashok had said the company need not necessarily revise prices every fortnight since the diesel price was de-regulated. "We decided against price revision as our calculation showed the hike would not have been significant," another senior company executive said. He added there was no directive from the election commission on fuel price revision. Since October 2014, OMCs have missed the fortnightly price revision of petrol five times including on September 15. While the IOC official claimed it was because the hike worked out to an insignificant amount, data show OMCs have announced small revisions in the past. Petrol prices were raised by a mere 28 paise on July 16 and pulled down by 31 paise on July 1.
An analysis of the movement of domestic retail prices of petrol and diesel against the prices highlights the failure to fully implement deregulation.
Since October 2014 - when the government deregulated diesel prices to ensure the prices of the two automobile fuels are market-driven - the Indian basket of crude oil prices has slumped 52 per cent from $91.98 a barrel to $46.33. However, petrol prices have come down by only eight per cent to Rs 61.20 a litre and diesel rates 18 per cent to Rs 44.45 a litre during the period.
Two factors - rupee-dollar exchange rate and excise duty changes - have limited the extent of benefit of lower prices passed on to consumers. The rupee has depreciated seven per cent against the dollar in this period. A depreciating rupee increases OMCs' procurement cost.
The government had increased the excise duty on petrol and diesel thrice between November 2014 and December 2015, seeking to corner the benefits from last year's crude price slump. As a result, during the three months, the excise duty on petrol almost doubled to Rs 17.46 a litre, while that on diesel tripled to Rs 10.26 a litre.
While the OMCs refuse to share data on the impact of excise duty hikes on their earnings, they are understood to have generated additional revenue of Rs 30,000 crore for the Centre between April and August.
