Diesel costlier than petrol for first time in Delhi after 18 hikes in a row

Prices of diesel continued to be lower in Mumbai, Kolkata, and Chennai.
In a first, diesel in Delhi became costlier than petrol on Wednesday. The price of diesel was increased to a historic high of Rs 79.88 per litre. 

Petrol remained unchanged at Rs 79.76 per litre. With the current hike, the price of petrol has increased by a cumulative Rs 9.41 per litre in the Capital and diesel by Rs 9.58 per litre in the last 18 days. This is after oil-marketing companies froze prices for almost 83 days during the lockdown. 

A major reason for the hike in Delhi is attributed to a sharp increase in the value-added tax (VAT) on fuel by the state government last month. The VAT on diesel was increased from 16.75 per cent to 30 per cent, and on petrol, from 27 per cent to 30 per cent.

“When prices were held, central excise and VAT, too, increased. Whatever price increase we are witnessing is because of international prices,” said Sanjiv Singh, chairman, Indian Oil Corporation.

Over 66 per cent of the price component of diesel in Delhi includes central and state taxes. On April 16, 2014, soon after the first Narendra Modi government took up the reins, the price of diesel was as low as Rs 55.49 per litre in Delhi. This has inched closer to Rs 80 per litre. 

“The issue of product pricing is on everybody’s mind. We follow the Arab Gulf price. We follow trade parity pricing, which considers 80 per cent import and 20 per cent export. Then there are transportation costs, marketing and dealer margins, excise duty, and VAT,” added Singh.

The increase in diesel is a temporary phenomenon. “Traditionally, diesel and petrol cracks were in the same range. However, diesel prices were lower on account of lower taxes. This may lead to demand-related slowdown and higher inflation,” said K Ravichandran, senior vice-president, ICRA. He added that the disparity in Delhi is higher due to a higher state tax component compared to other cities. India’s annual diesel consumption is around 84 million tonnes.

“In the past six years, the price of diesel, traditionally considered the backbone of the economy and in which the agriculture sector is heavily dependent on, has sharply increased. Earlier, there used to be a consistent Rs 12-per litre difference between both fuels,” said Ajay Bansal, president, All India Petroleum Dealers Association.

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