Petrol, diesel, CNG prices soaring: What's driving the cost higher

Petrol and diesel price hike in India has again become a daily phenomenon as in the last 15 days, the motor fuel prices have been hiked by 13 times, taking the total price hike nearly ₹10 a litre for both fuels in just two weeks. The CNG price too has been soaring keeping pace with petrol and diesel. This is not only impacting sales of vehicles and making things tough for motorists but resulting in increasing commodity prices as well for common people. In short, the relentless price hike can create major inflation in the country.

The latest price hike comes as the 13th increase in per litre petrol and diesel costs since the ending of a four-and-half-month long hiatus in rate revision on March 22. With the price hike announced by oil marketing companies on Tuesday, petrol in Delhi now costs ₹104.61 per litre, while diesel rates have gone up to ₹95.87 per litre.

Here are the factors that are driving petrol and diesel costs higher.

High tax amount

One of the crucial factors that drive petrol and diesel prices higher is the hefty amount of total tax incidence, which is a result of surcharges levied by the union government and state governments. While the union government imposes excise duty on petrol and diesel, state governments impose VAT rates that take the retail price of motor fuels significantly higher. VAT rates vary in different states, which results in variable retail prices of motor fuels in different states.

Volatile crude oil price

Volatility in crude oil price is another impacting factor for petrol and diesel in the Indian market. Crude oil price in the international market has become highly volatile because of the war between Russia and Ukraine. Not that the global oil production and supply have been reduced but the speculation that they could be hit if the unrest continues, is driving crude oil prices higher. At one point a few days ago, global crude oil prices even hit $139 per barrel.

With India importing 85 per cent of its total fuel requirement, the surging cost in the international market is directly impacting the price of motor fuels in the Indian market. The Union Budget 2022 speculated that crude oil prices would remain at around $78 per barrel during the whole year. However, the crude prices have hit a much higher mark than that within a few weeks only.