Crude falls to 42-month low, but high tax keeps petrol, diesel prices high in India
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India’s average crude oil import price has declined to $71.20 per barrel, marking a 42-month low, yet retail prices of petrol and diesel remain high due to taxation policies and refiners’ profit margins.
Despite the reduction in international crude oil prices, consumers have not experienced any corresponding decline in fuel costs, as the government continues to maintain high excise duties on petroleum products.
The Modi government has faced criticism for not passing on the benefits of declining crude oil prices to consumers, as high excise duties on fuel continue to generate substantial revenue for the Union government.
The taxation policy has kept oil prices within a controlled range, preventing consumers from experiencing any significant reduction in costs despite the global drop in crude oil prices. The sustained excise duty levels have resulted in windfall gains for the government, ensuring that lower international prices do not translate into lower retail prices for Indian consumers.
The decline in crude oil prices has been attributed to multiple global factors, including the economic slowdown in China, efforts to negotiate ceasefires in conflict zones, and increased oil production in the United States, which has led to a steady supply in the market.
While crude oil prices had surged following the outbreak of the Russia-Ukraine war in 2022 and the Israeli offensive in Palestine, they have since stabilised, with India’s current annual average crude import price reaching its lowest level since 2020-21.
Historical data highlights the fluctuation in crude oil prices, with the average price per barrel recorded at $44.82 in 2020-21, rising sharply to $93.15 in 2022-23 before moderating to $82.58 in 2023-24.
For the ongoing financial year, up to mid-March, the average stands at $78.49, suggesting a downward trend. The peak of Indian crude oil basket prices was seen in June 2022, when they reached $116.01 per barrel, before dropping below the $100 threshold in the subsequent months.
Despite these price movements, the retail cost of petrol and diesel has remained largely unchanged, as private refiners continue to operate with a profit margin of approximately ₹10-12 per litre.
Industry experts predict that global crude oil prices will remain subdued in the near term, citing the Chinese economic downturn, ceasefire negotiations in the Middle East, potential de-escalation of the Ukraine conflict, and increased American oil output, which is expected to rise further under a possible second term for Donald Trump.