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Thursday, July 09, 2020

Explained: Why diesel has become more expensive than petrol in Delhi

The price of diesel has traditionally been lower than that of petrol and continues to be lower in other parts of the country. In Delhi, diesel is now costlier than petrol after 18 hikes in a row.

Written by Karunjit Singh , Edited by Explained Desk | New Delhi | Updated: June 25, 2020 7:13:35 am
diesel, diesel price, petrol prices, diesel petrol prices in Delhi A petrol pump attendant wears personal protective gear during the nationwide lockdown imposed in the wake of COVID-19, in New Delhi. (Express Photo: Tashi Tobgyal)

The price of diesel in New Delhi surpassed the price of petrol for the first time with OMCs hiking the price of diesel by 48 paise per litre to Rs 79.88 even as the price of petrol was at Rs 79.76, not hiked for the first time in 18 days. The price of diesel has traditionally been lower than that of petrol and continues to be lower in other parts of the country.

The price of petrol has risen by Rs 8.5/litre and the price of diesel has increased by Rs 10.5 per litre since June 7 when oil marketing companies began revising the prices of petrol and diesel after an 82-day hiatus during which the international price of crude oil fell to below $20/barrel.

Why has this happened in Delhi?

The price gap between petrol and diesel in the national capital was Rs 7.3 on May 5 when the Delhi government increased the VAT on diesel to 30% from 16.75% and that on petrol to 30% from 27%. Diesel also attracts an additional air ambience levy of Rs 250/kilolitre.

This increase brought the price of diesel within Rs 2 from the price of petrol at the time, a gap which has been closed with OMCs hiking diesel prices more than petrol prices. According to experts, there is very little difference between international prices of petrol and diesel currently leading to taxes becoming the key component maintaining a price difference between petrol and diesel. The price of diesel and petrol are also almost on par in Ahmedabad as the VAT on both petrol and diesel is comparable.

While other states have also hiked levies on both petrol and diesel, most states have maintained lower tax rates on diesel than on petrol leading to the price of diesel remaining below the price of petrol despite a greater hike in the price of diesel than the price of petrol over the past 18 days.

Why were prices frozen and why are they rising now?

OMCs stopped revising prices from March 16 to June 7 even as international prices of crude oil, a crucial input in the production of petrol and diesel hit historic lows. During this time the only revisions in the prices of diesel and petrol were a result of changes in state taxes.

Representatives of Indian Oil Corporation, the largest OMC in the country, said they had decided to stop revising prices in line with international prices of petrol and diesel as following those guidelines during the historic fall in the prices of crude in late March and April would have lead to negative margins for the OMCs which they considered “not sustainable”. The oil marketing companies are now revising prices in line with guidelines and domestic prices of petrol and diesel are rising in line with international prices of petrol and diesel.

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International prices of both diesel and petrol are rising due to increasing demand as countries ease restrictions imposed to curb the spread of Covid-19 and the price of Brent crude has risen to around $42/barrel.

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