India has been spreading around its energy basket to address the volatility in the Gulf region. Photo: iStock
Indian gas stations have seen a dramatic fall in demand since the Covid-19 lockdown was imposed. Photo: iStock

Even as India battles the second wave of the Covid-19 pandemic, automobile fuel prices have continued to spiral with oil marketing companies hiking the tariff for the ninth time this month and the 16th time since May 4.

The price of gasoline has crossed the 100-rupee-per-liter mark in seven states and union territories including Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh, Telangana, Ladakh and Karnataka.

In New Delhi, gasoline is selling at 96.66 rupees a liter and diesel at 87.41 rupees, while in the financial capital, Mumbai, gasoline price is 102.82 per liter and diesel costs 94.84 rupees a liter. Among other metros, Hyderabad has also breached the 100-rupee rupee mark for gasoline while Bangalore and Chennai were close at 99.89 rupees and 97.91 rupees, respectively.

Oil marketing company officials expect the international oil prices to remain firm and more states may breach the 100-rupee mark for a liter of gasoline by the month-end. The benchmark Brent crude is currently close to $75 on Intercontinental Exchanges and the demand is expected to remain high due to the depleting inventory of the US market. India meets nearly 80% of its oil requirements through imports.

Fuel rates vary from state to state as the final price is dependent on state levies such as value added tax and transport costs. Rajasthan charges the highest value added tax, followed by Madhya Pradesh, Maharashtra, Andhra Pradesh and Telangana.

In addition, the federal government charges an excise duty on auto fuels. The federal and state taxes make up for 60% of the retail selling price of gasoline and over 54% of diesel. The federal government levies 32.90 rupees per liter in excise duty on gasoline and 31.80 rupees a liter on diesel.

Interestingly, fuel prices had remained stagnant for 18 days from April 16 to May 3 during the run-up to elections in four states and one union territory. It may also be recalled that when crude oil prices crashed last year during the early days of the Covid-19 pandemic, fuel prices in India remained high. The government had utilized the higher taxes from fuel to offset losses from low tax receipts from other revenue streams due to the lockdown.

Soaring inflation

High fuel prices have a cascading effect on inflation, as diesel is used extensively by transport operators and farmers. According to data released by the statistics ministry, the country’s Consumer Price Index soared in May to 6.3% (from 4.23% in April) on account of higher food and energy prices. Food inflation in May jumped to 5.01% in May, from 1.96% in April.

The Reserve Bank of India was tasked with maintaining retail inflation at 4% with a margin of 2% on either side till March 2026. Hence, the current index has surpassed the upper margin. The central bank had projected the consumer price index inflation at 5.1% during 2021-22. Governor Shaktikanta Das had recently called for a reduction of taxes and other levies on fuel to keep inflation under control.