In 2010, the Manmohan Singh government decontrolled retail petrol prices, and in 2015, the Narendra Modi government followed suit with diesel. The intention was to synchronize local retail prices with global trends. However, this move has raised concerns about its actual impact on consumers.
India relies heavily on imported oil, with 87 percent of its needs met from abroad. Despite this, retail oil prices are often quick to rise when global crude prices increase but slow to fall when import prices decrease. Petrol and diesel taxes are a significant revenue source for both central and state governments, and petroleum products are exempt from the Goods and Services Tax (GST).
Since June 2022, the global average crude price has dropped from a peak of $116 per barrel to $76.8. Yet, the retail price decontrol policy has not resulted in corresponding reductions in retail oil prices. Instead, oil companies are enjoying high profits, and government tax revenues remain stable.
The retail prices of oil and cooking gas often seem more influenced by elections than by global prices or import costs. Public sector oil marketing companies, controlled by the government, set retail prices for petrol and diesel.
From 2013 to 2018, global crude oil prices fell by 42 percent, yet in India, the retail price of petrol rose by 8 percent, and diesel by 33 percent. This discrepancy is hard to reconcile with the claim of linking domestic retail prices to bulk import costs.
The government’s portrayal of retail price decontrol as a link to global crude prices appears misleading. In theory, retail oil prices should decrease when crude prices fall, but this is not the case. The main beneficiaries are government-controlled oil companies and the government itself, which maintains tax revenues.
During the Covid-19 pandemic, when global crude prices plummeted, Indian consumers did not see a corresponding drop in retail prices. Instead, the government raised taxes on petrol and diesel when prices partially recovered.
The oil and gas sector is a significant revenue generator for the government, contributing various forms of taxes and duties. In the first half of the 2024 financial year, it contributed Rs. 3.41 trillion, with Rs. 1.85 trillion going to the national government and Rs. 1.56 trillion to the states.
Indian consumers should not expect local retail prices to fall in line with global crude prices. The government continues to regulate the retail oil market, despite claims of deregulation. The decision to fix retail oil prices is often political, with all ruling parties favoring high oil prices to maintain tax revenues.
In conclusion, the retail oil price decontrol in India has not brought the expected benefits to consumers. Instead, it has served to protect the interests of oil companies and government revenues, often at the expense of the public.