Petrol price: Oil companies lose Rs 4 on petrol, Rs 2 on diesel due to price freeze – Times of India

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NEW DELHI: But for a 20-day pause in fuel price revision, petrol would have cost more than Rs 103 per litre in Mumbai by now and sold for about Rs 100 in many other cities.
However, the reprieve for consumers have come at a cost to the state-run fuel retailers, who are suffering under-recovery of Rs 4 on a litre of petrol and Rs 2 on diesel, people involved in pricing said.
The retailers stopped revising prices since February 27, a day after assembly polls in five states were announced. Since then, however, India’s crude cost has risen from $64.68 per barrel on February 26 to $66.82 on Wednesday, hitting $68.42 in between. The rupee too has lost strength during this period to rule at 72.57 against the Greenback on Wednesday.

“Oil companies consider a 15-day rolling average for pricing crude. The average is still high for refiners. Benchmark Brent has been ruling high and has shown signs of marginal cooling in the last few days.

The Indian Basket follows Brent and has softened a bit since Wednesday. But as of now, retailers are losing Rs 4 and Rs 2 on petrol and diesel, respectively. There is under-recovery in LPG also,” a senior official said.
The price of regular petrol shot past Rs 100 a litre for the first time in the country in Sri Ganganagar and some other towns of Rajasthan on February 17.

Subsequently, several other cities in states with high VAT too saw the price hit a century. Prices in other states are ruling well above Rs 90 a litre. Household cooking gas has gone up cumulatively by Rs 175 since December.

The sharp rise in fuel prices has prompted widespread clamour for a tax cut by the Centre, which had raised excise duty sharply last year. The opposition parties, especially in poll-bound states, too are using the issue to attack the Centre.

The current freeze on price revision is reminiscent of 2018 when state-run fuel retailers were informally ‘nudged’ by the Centre to hold prices steady for 19 days from April 24 to May 13 ahead of the Karnataka assembly election.
Officially, the has government blamed output cuts by producing countries for high fuel prices and described it as a “temporary” phase. According to ICRA vice-president Prashant Vasisht, the freeze will adversely impact “profitability and cash accruals” of oil companies, leading to “higher reliance on debt, which might strain their credit metrics.”

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Petrol price can come down to ₹ 75 if brought under GST, but there is lack of political will: SBI Economists

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The SBI economists said bringing petrol and diesel under the goods and services tax is an unfinished agenda of the GST framework.

Petrol price can go down to ₹ 75 a litre across the country if brought under the ambit of the Goods and Services Tax (GST), but there is a lack of political will, which is keeping Indian oil product prices at one of the highest in the world, economists at SBI said on Thursday.

Diesel will come at ₹ 68 a litre and the revenue loss for the Centre and states will be only ₹ 1 lakh crore or 0.4 % of GDP, according to the calculation by the economists made under the assumption of global crude prices at $ 60 a barrel and exchange rate at ₹ 73 per dollar.

At present, every state has its own way of taxing fuels, while the Centre also collects its own duties and cess. Petrol prices have touched ₹ 100 per litre in some pockets of the country and concerns are being expressed about the high taxation which is making the fuels dearer.

The SBI economists said bringing petrol and diesel under the goods and services tax is an unfinished agenda of the GST framework and getting the prices under the new indirect taxes framework can help.

“Centre and states are loathe to bring crude oil products under the GST regime as sales tax/VAT (value added tax) on petroleum products is a major source of own tax revenue for them. Thus, there is lack of political will to bring crude under the ambit of GST,” they said.

At present, states choose to levy a combination of ad valorem tax, cess, extra VAT/surcharge based on their needs and these taxes are imposed after taking into account the crude price, the transportation charge, the dealer commission and the flat excise duty imposed by the Centre, they explained.

Assuming for the crude prices and dollar rate, transportation charges at ₹ 7.25 for diesel and ₹ 3.82 for petrol, dealer commission of ₹ 2.53 for diesel and ₹ 3.67 for petrol, cess of ₹ 30 for petrol and ₹ 20 for diesel which will be divided equally between the Centre and states, and GST rate at 28 %, the economists came at the final price estimates.

A growth in the consumption – diesel going up 15 % and petrol by 10 % – has been used to assess the ₹ 1 lakh crore fiscal impact of getting petroleum prices under GST, it said.

An increase of $ 1 in the crude oil prices will push up the petrol price by around 50 paise and diesel prices by around ₹ 1.50, and bring down the overall deviation by around ₹ 1,500 crore under the baseline scenario, it said.

States, which have the highest share of tax revenues at present, will be the biggest losers if the system shifts to GST, it said, quickly adding that such a move will help consumers pay up to ₹ 30 less.

Interestingly, the simulation exercise suggests that when crude oil price declines by $ 10 per barrel, Centre and states could save close to ₹ 18,000 crore, if they keep the petrol prices at baseline prices without passing the benefit to consumers, which is higher than the savings of ₹ 9,000 crore when the crude prices go up by a same measure.

“We thus recommend the government build up an oil price stabilisation fund which can be used in bad times for compensating revenue loss by cross subsidising fund saved from good times, without hurting the consumer,” it said.

For the LPG cylinders, the economists proposed an increased and graded subsidy may be provided to poor consumers which can be tapered off over a period of, say, 5-years.

Meanwhile, the note said the latest revenue and expenditure numbers could lead to lowering of fiscal deficit to 8.7 % in FY21, down from 9.5 % in the revised budget estimates.

It is highly likely that the Government might cancel its ₹ 49,000 crore borrowing planned in the last fortnight of March, they said.

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