Why petrol, diesel prices are on the rise in India

Prior to the November 20 hike in rates in India, petrol prices had been static since September 22 and diesel rates hadn't changed since October 2. Now petrol prices have crossed Rs 90 mark in Mumbai, while diesel rates went up from Rs 80.23 to Rs 80.51.

In India, fuel prices are benchmarked to a 15-day rolling average of global refined products prices and dollar exchange rate. Rising crude oil prices are thus the biggest reason behind fuel price hikes in India. Benchmark Brent spiked 1.6% to $48.61 per barrel last Wednesday, the highest since March.

Taxes also make a big portion of fuel prices in India. Excise duty and VAT make up 63% of petrol and 60% of diesel prices in India. For instance, in Delhi when a litre of petrol last sold for Rs 81.06 in Delhi on November 19, consumers paid Rs 51.69 as taxes. At a price of Rs 71.46 a litre for diesel, consumers paid Rs 42.59 in taxes.

High oil prices are also bad news for the government which is already struggling with a pandemic-induced recession. Though the government does not buy oil itself but cheaper oil has a positive impact on macroeconomic parameters, which reduces drag on government finances and frees up resources for welfare, explained a report on Times of India.