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In the past few months, retail prices of petrol and diesel have consistently increased to all-time high levels.  On October 16, 2021, the retail price of petrol in Delhi was Rs 105.5 per litre, and that of diesel was Rs 94.2 per litre.  In Mumbai, these prices were even higher at Rs 111.7 per litre and Rs 102.5 per litre, respectively.

The difference in fuel retail prices in the two cities is due to the different tax rates levied by the respective state governments on the same products.  In this blog post, we look at the tax components in the price structure of petrol and diesel, the variation in these across states, and the major changes in taxation of these products in the recent years.  We also discuss changes in the retail prices over the past few years and how it compares vis-à-vis the global crude oil prices.

Taxes make up around 50% of the retail price

Public sector Oil Marketing Companies (OMCs) revise the retail prices of petrol and diesel in India on a daily basis, according to changes in the price of global crude oil.  The price charged to dealers includes the base price set by OMCs and the freight price.   As on October 16, 2021, the price charged to dealers makes up 42% of the retail price in the case of petrol, and 49% of the retail price in the case of diesel (Table 1).

The break-up of retail prices of petrol and diesel in Delhi (as on October 16, 2021), shows that around 54% of the retail price of petrol comprises central and states taxes.  In the case of diesel, this is close to 49%.  The central government taxes the production of petroleum products, while states tax their sale.  The central government levies an excise duty of Rs 32.9 per litre on petrol and Rs 31.8 per litre on diesel.  These make up 31% and 34% of the current retail prices of petrol and diesel, respectively.

Table 1: Break-up of petrol and diesel retail prices in Delhi (as on October 16, 2021)

Component

Petrol

Diesel

Rs/litre

% of retail price

Rs/litre

% of retail price

Price Charged to Dealers

44.4

42%

46.0

49%

Excise Duty (levied by centre)

32.9

31%

31.8

34%

Dealer Commission (average)

3.9

4%

2.6

3%

Sales Tax/ VAT (levied by state)

24.3

23%

13.8

15%

Retail Price

105.5

100%

94.2

100%

Note: Delhi levies 30% VAT on petrol and 16.75% VAT on diesel. 
Sources: Indian Oil Corporation Limited; PRS.

While excise duty rates are uniform across the country, states levy sales tax/ Value Added Tax (VAT) which varies across states.  For instance, Odisha levies 32% VAT on petrol, while Uttar Pradesh levies 26.8% VAT or Rs 18.74 per litre, whichever is higher.   Refer to the table 3 in annexure for sales taxes/VAT levied across the country.  The figure below shows the different tax rates levied by states on petrol and diesel.  In addition to the tax rates shown in the graph, many state governments, such as Tamil Nadu, also levy certain additional levies such as cess (Rs 11.5 per litre).

Figure 1: Sales tax/VAT rates levied by states on petrol and diesel (as on October 1, 2021)

image

Note: The rates shown for Maharashtra are averages of the rates levied in the Mumbai-Thane region and in the rest of the state. Only percentages are being shown in this graph. 
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Note that unlike excise duty, sales tax is an ad valorem tax, i.e., it does not have a fixed value, and is charged as a percentage of the price of the product.  This implies that while the value of excise duty component of the price structure is fixed, the value of the sales tax component is dependent on the other three components, i.e., price charged to dealers, dealer commission, and excise duty.

Retail prices in India compared to global crude oil price

India’s dependence on imports for consumption of petroleum products has increased over the years.  For instance, in 1998-99, net imports of petroleum products were 69% of the total consumption, which increased to around 95% in 2020-21.  Because of a large share of imports in the domestic consumption, any change in the global price of crude oil has a significant impact on the domestic prices of petroleum products.  The two figures below show the trend in the price of global crude oil and retail prices of petrol and diesel in India, over the last nine years.

Figure 2: Trend of the global crude oil price vis-à-vis retail prices of petrol and diesel (in Delhi)

image

image

Note: Global Crude Oil Price is for the Indian basket.   Petrol and diesel retail prices are for Delhi.  Figures reflect average monthly price.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Between June 2014 and October 2018, the retail selling prices did not adhere to change in global crude oil prices.  The global prices fell sharply between June 2014 and January 2016, and then subsequently increased between February 2016 and October 2018.  However, the retail selling prices remained stable during the entire period.  This disparity in the change in global and Indian retail prices was because of the subsequent changes in taxes.  For instance, central taxes were increased by Rs 11 and 13 between June 2014 and January 2016 on petrol and diesel respectively.  Subsequently, taxes were decreased by four rupees between February 2016 and October 2018 for petrol and diesel.  Similarly, during January-April 2020, following a sharp decline of 69% in the global crude oil prices, the central government increased the excise duty on petrol and diesel by Rs 10 per litre and Rs 13 per litre, respectively in May 2020. 

Sharp increase in excise duty collections

As a result of the increase in excise duty in May 2020, the excise duty collection increased sharply from Rs 2.38 lakh crore in 2019-20 to Rs 3.84 lakh crore in 2020-21.  The year-on-year growth rate of excise duty collection increased from 4% in 2019-20 to 67% in 2020-21.  However, sales tax collections (from petroleum products) during that period remained more or less constant (Figure 3).  

Figure 3: Excise duty and sales tax/ VAT collection from petroleum products (in Rs lakh crore) 

image

Note: The excise duty component in the figure includes cess on crude oil.
Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS.

Share of states in excise duty has decreased over the years

Though central taxes (such as excise duty) are levied by the centre, it has only 59% of the revenue from these taxes.  The remaining 41% of the revenue is required to be devolved to the state governments as per the recommendations of the 15th Finance Commission.  These devolved taxes are un-tied in nature, states can spend them according to their own discretion.  The excise duty levied on petrol and diesel consists of two broad components: (i) tax component (i.e., basic excise duty), and (ii) cess and surcharge component.  Of this, only the revenue generated from the tax component is devolved to states.  Revenue generated by the centre from any cess or surcharge is not devolved to states.  Currently, the Agriculture Infrastructure and Development Cess, and the Road and Infrastructure Cess are levied on the sale of petrol and diesel in addition to the surcharge.  

In the Union Budget 2021-22, the Agriculture Infrastructure and Development cess on petrol and diesel was announced at Rs 2.5 per litre and Rs 4 per litre, respectively.  However, simultaneously, the basic excise duty and surcharge were reduced by equal amounts, so that the overall rate remains the same.  Essentially, this provision shifted a revenue of Rs 1.5 per litre of petrol and Rs 3 per litre of diesel from the states’ divisible pool of taxes to the cess and surcharge revenue, which is entirely with the centre.  Similarly, over the last four years, the share of tax component in the excise duty has decreased by 40% in petrol and 59% in diesel (table 2).  At present, majority of the excise duty levied on petrol (96%) and diesel (94%) is in the form of cess and surcharge, due to which it is entirely under the centre’s share (Table 2).  

Table 2: Break up of excise duty (Rs per litre)

Excise duty

Petrol

Diesel

Apr-17

% share of total

Feb-21

% share

Apr-17

% share of total

Feb-21

% share

Tax (devolved to states)

9.48

44%

1.4

4%

11.33

65%

1.8

6%

Cess and surcharge (centre)

12

56%

31.5

96%

6

35%

30

94%

Total

21.48

100%

32.9

100%

17.33

100%

31.8

100%

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS

As a result, the devolution to states out of the excise duty has declined over the last four years.   Even though the excise duty collections have increased sharply between 2019-20 and 2020-21, the devolved component has declined from Rs 26,464 to Rs 19,578 (revised estimate) in the same period.    

Annexure

Table 3: Sales taxes/VAT rates levied on petrol and diesel across states (as on October 1, 2021)

State/UT

Petrol

Diesel

Andaman & Nicobar Islands

6%

6%

Andhra Pradesh

31% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess an

d Vat thereon

22.25% VAT + Rs.4/litre VAT+Rs.1/litre Road Development Cess and Vat thereon

Arunachal Pradesh

20%

13%

Assam

32.66% or Rs.22.63 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre

23.66% or Rs.17.45 per litre whichever is higher as VAT minus Rebate of Rs.5 per Litre

Bihar

26% or Rs 16.65/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)

19% or Rs 12.33/Litre whichever is higher (30% Surcharge on VAT as irrecoverable tax)

Chandigarh

Rs.10/KL cess +22.45% or Rs.12.58/Litre whichever is higher

Rs.10/KL cess + 14.02% or Rs.7.63/Litre whichever is higher

Chhattisgarh

25% VAT + Rs.2/litre VAT

25% VAT + Rs.1/litre VAT

Dadra and Nagar Haveli and Daman and Diu

20% VAT

20% VAT

Delhi

30% VAT

Rs.250/KL air ambience charges + 16.75% VAT

Goa

27% VAT + 0.5% Green cess

23% VAT + 0.5% Green cess

Gujarat

20.1% VAT+ 4% Cess on Town Rate & VAT

20.2% VAT + 4 % Cess on Town Rate & VAT

Haryana

25% or Rs.15.62/litre whichever is higher as VAT+5% additional tax on VAT

16.40% VAT or Rs.10.08/litre whichever is higher as VAT+5% additional tax on VAT

Himachal Pradesh

25% or Rs 15.50/Litre- whichever is higher

14% or Rs 9.00/Litre- whichever is higher

Jammu & Kashmir

24% MST+ Rs.5/Litre employment cess, Reduction of Rs.0.50/Litre

16% MST+ Rs.1.50/Litre employment cess 

Jharkhand

22% on the sale price or Rs. 17.00 per litre , which ever is higher + Cess of Rs 1.00 per Ltr

22% on the sale price or Rs. 12.50 per litre , which ever is higher + Cess of Rs 1.00 per Ltr

Karnataka

35% sales tax

24% sales tax

Kerala

30.08% sales tax+ Rs.1/litre additional sales tax + 1% cess 

22.76% sales tax+ Rs.1/litre additional sales tax + 1% cess 

Ladakh

24% MST+ Rs.5/Litre employment cess, Reduction of Rs.2.5/Litre

16% MST+ Rs.1/Litre employment cess , Reduction of Rs.0.50/Litre

Lakshadweep

Nil

Nil

Madhya Pradesh

33 % VAT + Rs.4.5/litre VAT+1%Cess

23% VAT+ Rs.3/litre VAT+1% Cess

Maharashtra – Mumbai, Thane , Navi Mumbai,  Amravati & Aurangabad

26% VAT+ Rs.10.12/Litre additional tax 

24% VAT+ Rs.3.00/Litre additional tax 

Maharashtra (Rest of State)

25% VAT+ Rs.10.12/Litre additional tax 

21% VAT+ Rs.3.00/Litre additional tax 

Manipur

32% VAT

18% VAT

Meghalaya

20% or Rs15.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) 

12% or Rs9.00/Litre- whichever is higher (Rs.0.10/Litre pollution surcharge) 

Mizoram

25% VAT

14.5% VAT

Nagaland

25% VAT or Rs. 16.04/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess 

16.50% VAT or Rs. 10.51/litre whichever is higher +5% surcharge + Rs.2.00/Litre as road maintenance cess 

Odisha

32% VAT

28% VAT

Puducherry

23% VAT

17.75% VAT

Punjab

Rs.2050/KL (cess)+ Rs.0.10 per Litre (Urban Transport Fund) + 0.25 per Litre (Special Infrastructure Development Fee)+24.79% VAT+10% additional tax on VAT

Rs.1050/KL (cess) + Rs.0.10 per Litre (Urban Transport Fund) +0.25 per Litre (Special Infrastructure Development Fee) + 15.94% VAT+10% additional tax on VAT

Rajasthan

36% VAT+Rs 1500/KL road development cess

26% VAT+ Rs.1750/KL road development cess

Sikkim

25.25% VAT+ Rs.3000/KL cess 

14.75% VAT + Rs.2500/KL cess 

Tamil Nadu

13% + Rs.11.52 per litre

11%  + Rs.9.62 per litre

Telangana

35.20% VAT

27% VAT

Tripura

25% VAT+ 3% Tripura Road Development Cess

16.50% VAT+ 3% Tripura Road Development Cess

Uttar Pradesh

26.80% or Rs 18.74/Litre whichever is higher

17.48% or Rs 10.41/Litre whichever is higher

Uttarakhand

25% or Rs 19 Per Ltr whichever is greater

17.48% or Rs Rs 10.41 Per Ltr whichever is greater

West Bengal

25% or Rs.13.12/litre whichever is higher as sales tax+ Rs.1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

17% or Rs.7.70/litre whichever is higher as sales tax + Rs 1000/KL cess – Rs 1000/KL sales tax rebate (20% Additional tax on VAT as irrecoverable tax)

Sources: Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas; PRS. 

As of May 22, 2020, there are 1,18,447 confirmed cases of COVID-19 in India, which is 76% higher than the cases on May 11, 2020 (67,152). Out of total confirmed cases, there are 66,330 active cases, 48,354 patients have been cured/discharged and 3,583 have died (Figure 1). As the spread of COVID-19 has increased across India, the central government has continued to announce several policy decisions to contain the spread, and support citizens and businesses who are being affected by the pandemic.  In this blog post, we summarise some of the key measures taken by the central government in this regard between May 11 and May 22, 2020.

Figure 1: Number of day wise COVID 19 cases as on May 22, 2020

 image

Aatma Nirbhar Bharat Abhiyaan

On May 12, the Prime Minister, Mr. Narendra Modi, announced a special economic package of Rs 20 lakh crore (equivalent to 10% of India’s GDP) aimed towards making the country ready for the tough competition in the global supply chain and empowering the poor, labourers, migrants who have been adversely affected by COVID-19.   Following this announcement, the Finance Minister, Ms. Nirmala Sitharaman, in five press conferences, announced the detailed measures under the economic package.  The economic package includes earlier measures taken by the government to support the citizens and businesses of India.  A break-up of the package is presented in Table 1.

Table 1: Break-up of stimulus from Aatma Nirbhar Bharat Abhiyaan package

Item

Key Topics covered

Amount (in Rs crore)

Stimulus from earlier measures

 Pradhan Mantri Garib Kalyan Yojana, Tax Concessions, and the Prime Minister's announcement for health sector

1,92,800

Part 1

Business including Micro, Small and Medium Enterprises (MSMEs)

5,94,550

Part 2

Poor people including migrants and farmers.

3,10,000

Part 3

Agriculture and allied sectors.

1,50,000

Part 4 and Part 5

Part 4: Coal and mineral sectors, defence sector, civil Aviation, airports and aircraft Maintenance, Repair and Overhaul (MRO), power sector, social infrastructures, space, atomic energy.

Part 5: Government reforms and other provisions including public health and education, additional allocation to MGNREGS

48,100

Sub Total

 

1,295,400

RBI Measures (Actual)

Reduction in Cash Reserve Ratio (CRR), Special Liquidity Facility (SLF) for mutual funds, Special refinance facilities for NABARD, SIDBI and NHB at policy repo rate

8,01,603

Grand Total

 

20,97,053

Note: Part 1, 2, 3, 4, 5 in the table above represents the five press conferences conducted by the Finance Minister to announce the details of the economic package.

Source:   Presentation made by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman under Aatmanirbhar Bharat Abhiyaan to support Indian economy in fight against COVID-19, Ministry of Finance, May 13, 2020, PRS.

For more information on the details of the announcements made under Aatma Nirbhar Bharat Abhiyaan, please see here.

Finance

Following the Prime Minister’s and Finance Minister’s announcements, further announcements were also made. 

  • Cabinet approved the additional funding of Rs three lakh crore to eligible MSMEs and interested MUDRA borrowers under the Emergency Credit Line Guarantee Scheme.  The funding will be covered under 100% guarantee coverage by the National Credit Guarantee Trustee Company Limited in the form of a Guaranteed Emergency Credit Line facility.
     
  • Cabinet also approved the special liquidity scheme for Non-Banking Finance Companies (NBFCs)/Housing Finance Companies (HFCs).  The details of the scheme were shared by the Finance Minister in May 2020 under the Aatma Nirbhar Bharat Abhiyaan.
     
  • Securities and Exchange Board of India (SEBI) revised the post-default curing period for credit rating agencies (CRAs) in their circular dated May 21, 2020.  Now, once the default is cured and payments are regularised, CRAs will upgrade the rating from default to non-investment grade after a period of 90 days based on the satisfactory performance by the company during the period.  As of now, after the entity corrects the default, the CRAs upgrade the rating from default to speculative grade in 90 days and from default to investment grade in 365 days.
     
  • On May 22, the Monetary Policy Committee of Reserve Bank of India (RBI), reduced the policy repo rate under the liquidity adjustment facility (LAF) by 40 bps to 4% from 4.4%.  The marginal standing facility (MSF) and the bank rate have been reduced to 4.25% from 4.65%.  The reverse repo rate has been also reduced from 3.75% to 3.35%.
     
  • The Reserve bank of India (RBI) issued a statement with various development and regulatory policies.  The policies specify details on measures (i) to improve the functioning of market; (ii) to support exports and imports; (iii) to ease financial stress; (iv) for debt management.  The cash reserve ratio (CRR) of all banks will be reduced by 100 basis points to 3%, which will provide a liquidity support of Rs 1,37,000 crore across the banking system. The policy extends the moratorium on payment of instalments of all type of loans as on March 1, 2020 by another three months (up to August 2020).   This is applicable to loans from all commercial banks including Non-Banking Finance Companies (NBFCs) and co-operative banks.   

Lockdown 4.0

The Ministry of Home Affairs (MHA) passed an order extending the lockdown till May 31, 2020. This lockdown will have more relaxations compared to earlier lockdowns.

Zoning of areas

The new guidelines have authorised states/union territories (UTs) to define the red, green and orange zones based on the parameters prescribed by the Health Ministry.  The states/UTs can define a district, or a municipal corporation/ municipality or even smaller administrative units such as sub-divisions, etc. as a red or green or orange zone.

  • Red and Orange Zones: Within red and orange zones, the local authorities will identify containment and buffer zones based on the guidelines from the Health Ministry.  Buffer zones are areas adjacent to containment zones which have a high probability of cases.
     
  • Containment Zones: Movement of individuals will not be allowed in containment zones to ensure strict perimeter control except for medical emergencies and supply of essential goods and services.

The prohibition of certain activities or restrictions in various zones within a state will be at the discretion of the state/union territory as deemed necessary.

Prohibited Activities

Some activities will continue to remain prohibited throughout the country.  These include:

  • all international air travel of passengers, except for domestic medical services, domestic air ambulance and for security purposes or purposes as permitted by MHA;
     
  • metro rail services;
     
  • running of schools, colleges, educational and training/coaching institutions;
     
  • hotels, restaurants and other hospitality services, except for the running of canteens in bus depots, railway stations and airports;
     
  • places of large public gatherings such as cinemas, shopping malls, and gymnasiums entertainment parks;
     
  • social, political, cultural, and similar gatherings and other large congregations; and access to religious places/places of worship for the public. 

Online/ distance learning is encouraged and permitted; and, restaurants will be allowed to operate kitchens for home delivery of food items.

National Directives for COVID Management

The Ministry of Home Affairs issued the National Directives for COVID Management, which apply to public places and work places. As per these guidelines:

  • wearing of face covers is compulsory; 
     
  • spitting will be punishable with fine as may be prescribed in accordance with its laws, rules or regulations by the State/ UT local authority; 
     
  • social distancing is to be followed by all persons in public places and in transport;  
     
  • marriage related gathering has been limited to 50 guests;  
     
  • for funerals/ last rites, the maximum number of persons allowed is 20;  
     
  • consumption of liquor, paan, gutkha and tobacco etc., is not allowed in public places.  

Guidelines for workplaces include:

  • employers will encourage practice of work from home to the extent possible; 
     
  • staggering of work hours will be adopted in respect of all offices and other establishments.  
     
  • there will be provision for thermal scanning, hand wash and sanitizers at all entry and exit points and common areas;
     
  • all work places and other sensitive locations are to be sanitized regularly.  
     
  • social distancing will have to be ensured through adequate distance between workers, adequate gaps between shifts, staggering the lunch break of staff and so on.

Aarogya Setu

The District authorities will ensure installation of the Aarogya Setu application on compatible mobile phones of all individuals and will have to regularly update their health status on the app.

Aarogya Setu Data access and knowledge sharing protocol, 2020

The Ministry of Electronics and Information Technology, Government of India issued a notification on the data access and knowledge sharing protocol, 2020 in reference to the Aarogya Setu mobile application.  The protocol will: (i) ensure secure collection of data by the mobile application, (ii) protect the personal data of individuals, and (iii) ensure efficient use and sharing of personal or non-personal data of the application users.  The protocol provides principles for: (i) collection and processing of response data, (ii) sharing of response data, (iii) obligations of entities with whom the data will be shared, and (iv) sharing of data for research purpose.  A sunset clause is applicable to the protocol subjecting it to a review after 6 months unless there is any extension of sunset clause in wake of the pandemic.

Travel and Movement

  • The Ministry of Railways announced to run Shramik special trains from all districts connected by railways in the country.  The ministry is awaiting details on migrants from each district to operationalise the trains.
     
  • The Ministry of Home Affairs (MHA) has written to Chief Secretaries of all states allowing them to arrange special buses to carry people from railway stations to their home.  This provision is applicable, with condition of maintaining proper social distancing norms, only at places where public or personal transport is not available.
     
  • On May 11, 2020, MHA passed an order permitting movement of individuals by trains.   Following the order, 15 pair of trains are being run   connecting New Delhi to Dibrugarh, Agartala, Howrah, Patna, Bilaspur, Ranchi, Bhubaneswar, Secunderabad, Bengaluru, Chennai, Thiruvananthapuram, Madgaon, Mumbai Central, Ahmedabad and Jammu Tawi.
     
  • The Ministry of Railways in consultation with the MHA and the Ministry of Health & Family Welfare, issued guidelines on partial restoration of train services (other than the Shramik trains) from June 1, 2020.  200 passenger trains with AC, Non-AC and general classes will be operationalised.   Booking for these trains commenced on May 21, 2020.  The guidelines contain detailed information on (i) booking of tickets and charting, (ii) quota permitted, (iii) catering, and (iv) linen and blankets.  All passengers will have to download and use the Aarogya Setu mobile application.
     
  • On May 19, 2020, MHA issued a Standard operating Procedure (SOP) for movement of stranded workers by trains.   As per the SOP, the Ministry of Railways will permit the movement of stranded workers by trains in consultation with MHA.  The Ministry of Railways will finalise the schedules for trains including the stoppages and destinations and will communicated it to state/UTs.  On arrival at the destination, the travelling passengers will have to adhere to the health protocols as prescribed by the destination state/UT.  The inter-state movement of stranded persons by bus and vehicles will be allowed subject to mutual consent of the concerned States/UTs.  The intra-state movement of vehicles will be at the discretion of the states/UTs.
     
  • The MHA amended the order on Lockdown 4.0 to facilitate domestic air travel for stranded persons.  Following the amendment, the Ministry of Civil Aviation issued the order for commencement of domestic air travel of passengers from May 25, 2020.  The passengers will have to show a self-declaration, using the Aarogya Setu mobile application, that they are free of COVID-19 symptoms and those with Red status will not be allowed to travel.  The order contains three annexures with (i) general instructions for commencement of domestic air travel, (ii) the detailed guidelines to be followed by air passengers, and (iii) specific operating guidelines for major stakeholders.

Health

  • The Ministry of Health and Family Welfare issued: (i) updated containment plan on COVID-19, and (ii) updated containment plan for large outbreaks of COVID 19.   These plans provide information on various scenarios of COVID-19 and strategies to control the spread of the disease including definitions, action plans and specific details on (i) identification of containment zones and buffer zones; (ii) perimeter control; (iii) support from various stakeholders such as testing laboratories and hospitals; (iv) pharamaceutical and non-pharmaceutical interventions; and (v) risk communication.

For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.