Excise On Oil Hiked Without Impacting Customers

Indian government announced an excise duty hike of ₹10 and ₹13 on petrol and diesel respectively. With this move, the government is aiming to earn additional revenue without burning holes in the pockets of the consumers. However, oil companies that earned massive margins on fuel these days, will have to lose that after they adjusts base fare of oil to prevailing crude oil price.

Crux of the Matter

Excise Duty Hike The Indian government announced a hike in the excise duty levied on petrol and diesel. Previously, Centre had levied ₹3 additional excise on both on 14th March 2020. It had expected to earn additional revenue of ₹39,000 crores. With this increase, the government is expecting additional revenue of ₹1.6 lakh crores. However, the incidence of the hike this time does not fall on the consumer. The government has asked the oil companies to adjust their base oil prices to the prevailing crude oil rate. It must be noted that oil companies have not reduced the base fare of fuel prices since 16th March 2020. Therefore, the prices of petrol and diesel will not rise because of the hike and will continue to be calculated as the average of the last three days’ price.

Benefitting From The Low Price Petroleum Minister Dharmendra Pradhan said India took the benefit of low crude oil prices and stockpiled 32 million tons of crude oil. To store 1 ton oil, 7.33 barrels are required. Therefore, (32 million tons x 7.33 barrels) equals ~230 million barrels – procured by India as reserves. India’s expected oil demand per day in 2020 is 4.73 million barrels per day. Hence, (stockpile of 230 mn barrels / 4.73 mn barrels demand per day) equals 48 days of oil demand that can be met with the current reserves. This is ~ 13% of yearly demand.

Who Gets What?

1. 
   

1. 
   

Curiopedia

1. John Davison Rockefeller Sr. was an American business magnate and philanthropist. He is widely considered the wealthiest American of all time, and the first Billionaire. Rockefeller founded the Standard Oil Company, which was produced, refined, and transported oil. Adjusted for inflation, he is considered to be the richest person in a modern post-industrial world.

2. The Organization of Arab Petroleum Exporting Countries (OAPEC) is a multi-governmental organization headquartered in Kuwait which coordinates energy policies among oil-producing Arab nations. OAPEC’s primary objective is safeguarding the cooperation of numerous members in various aspects of economic activity within the oil industry as well as maintaining strong relations among themselves. It is different from OPEC.

3. The Deepwater Horizon drilling rig explosion happened on April 20, 2010, resulting in a fire on the Deepwater Horizon semi-submersible Mobile Offshore Drilling Unit (MODU), which was owned and operated by Transocean Ltd. The explosion and subsequent fire resulted in the sinking of the Deepwater Horizon and the deaths of 11 workers and injury to 17. It is considered to be the largest accidental marine oil spill in the world, and the largest environmental disaster in US history.

Curated Coverage

1. Economic Times – Government hikes excise duty on petrol price by Rs 10, diesel price by Rs 13

2. Financial Express – Petrol, diesel price today: Massive hike in excise duty on fuel by Modi govt. Will it impact you?

3. Times of India – Centre jacks up fuel tax again, but no impact on consumers

4. Livemint – Petrol, diesel price: Almost 70% of what you pay goes towards taxes

5. Economic Times – India’s annual fuel demand to decline 5.6% in 2020: IEA

6. Economic Times – India sees 2020/21 fuel demand growth rebound

#Coronavirus #Oil