Revisions in Indian excise duty could withheld significant drop

Fuel: The fuel price globally has been sliding since 2014. Yet, after more than 20  fuel price revisions in the country last year, petrol got cheaper only by about Nu 2 and diesel by Nu 5 till date.

However, comparing with July, 2014, when fuel price soared to its all time high of Nu 73 a liter for petrol and around Nu 62 for diesel, the drop is drastic.

Had it not been for the excise duty hikes the Indian government imposed on the refineries like Bharat petroleum and Indian Oil Corporation, current petrol prices would be at least Nu 2 lower than the actual price.

In the last two months, there have been four reductions in fuel prices, resulting in drop of petrol price by Nu 1.7 a liter and diesel by Nu 2.4 a liter. But this was simultaneously followed by two excise duty hikes in India. This withheld around Nu 1.60 reduction in petrol price alone.

According to Indian media reports, excise duty on fuel in India has been hiked twice this month and four times since November 2014. This has brought the Indian government an additional revenue of Rs 137B to cover their fiscal deficit.

Otherwise, the reduction in the price of petrol and diesel is much lower than crude oil prices that fell to below USD 30 per barrel  today, compared with USD  115 a barrel in 2014.

Indian state-owned fuel retailers, Indian Oil Corporation, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) revise rates of petrol and diesel on the 1st and 16th day of every month based on average oil price and foreign exchange rate in the preceding fortnight.

Fuel prices are further bound to decrease with the sanctions on oil export lifted from Iran, a major oil producing country, last Saturday.

A flood of oil from Iran will likely push the supplies, speculating a surge in production. Should this happen, global oil supply is expected to reach 4.2M barrels a day, which could further shrink the price.

The shale boom in United States has forced Organization of the Petroleum Exporting Countries (OPEC) to change its strategy and step up production to defend its market share, but international media reported that it’s unlikely the group will do something now.

OPEC is an organisation comprised of oil producing countries that coordinate and unify the petroleum policies of its member countries and ensure the stabilisation of oil markets.

Meanwhile, the country also experienced few hikes in fuel prices in three of the months last year. This was again due to the exchange rate fluctuations.

USD appreciating against INR also inflate the price of crude oil since barrels of crude oil are traded in USD.

Last year, the country experienced highest petrol price of around Nu 66 a liter and Nu 53 a liter for diesel.

Tshering Dorji