Case Study of Petrol & Diesel Price History in India

Petrol and diesel are essential for every sector in India as they are considered the backbone of transportation, agricultural, and manufacturing sectors. Over the years, fuel prices in India have changed due to internal factors and international market forces. The price of crude oil, taxation policies, government intervention, and the demand and supply have determined the pattern for the price of petrol and diesel. Understanding these trends is crucial for consumers and businesses.

Rising costs of petrol and diesel affect not only the ordinary commuter but also the economy as a whole. The transportation cost, due to the hike in the price of fuel, is reflected in the price of goods and services. In fact, with online trading platforms in place, people are now investing in oil-related stocks in India, making it crucial for investors to be informed of these dynamic price changes in fuel prices.

This blog contains a case study of how petrol and diesel prices are determined, their historical trends, the gap between the prices of the two fuels, the consequences of rising prices and the future outlook in India.

How are Petrol and Diesel Prices Determined in India?

Pricing petrol and diesel is a complex task as it is influenced by various factors. This is important to consumers as well as to businesses because corporations pass on these rises in costs to their consumers. Here are the main factors that determine petrol and diesel prices in India:

• Global Crude Oil Prices: The global crude oil market price is the most influential factor in determining the fuel prices in India. As India imports 85% of its crude oil, any fluctuation in the international market prices decreases or increases the fuel prices in India. 

• Exchange Rate: Another equally important factor has been the exchange rate, particularly INR against USD. Since the dollar is used to buy crude, a weakening rupee increases the import cost of crude, which further pushes up the fuel price. 

• Taxes and duties: Central as well as state governments impose excise duty and value-added tax respectively, on petrol and diesel. Taxes form a majority of the retail price of petrol, at times making it more than half the cost to the consumer. This is one of the primary reasons why petrol prices have increased radically in recent times. 

• Cost of Refining: Refining crude oil into usable petrol and diesel requires infrastructure and labor, which the refineries and dealers pass on to consumers. Some refineries reduce costs because of advanced technology, but any additional maintenance costs or accidents can shoot the fuel prices up in a short time span.

• Transportation and Distribution Costs: Fuel supplied from the refineries to retail outlets in India, especially from remote areas, contributes to the overall cost. Such variations in logistics costs also account for differing regional prices. 

• Petrol-Diesel Dynamics: The domestic consumption of petrol and diesel has the highest impact on their prices. Diesel is utilized mainly by tractors and trucks, making it the backbone of agriculture and transport. Peak agricultural seasons always result in high diesel prices. Furthermore, fast urbanization and rising incomes in India have resulted in high ownership of vehicles and, therefore, a rise in the demand for petrol.

• Government Subsidies and Policies: Petrol and diesel prices in India remained heavily subsidized over time to control inflation. However, this policy was scrapped in 2010, when the petrol prices were linked to global crude prices and in 2014 when diesel prices were aligned to international markets just like with petrol, which ensures that its local price differential is much more sensitive to oil price movements around the world. This has led to relatively high price volatility in domestic markets.

All these factors together affect the petrol and diesel prices. The government keeps a close eye on it, adjusts the taxes or introduces subsidies when the market requires it.

Petrol & Diesel Price History in India

The history of petrol and diesel prices in India has been very volatile in nature. The prices have escalated sharply over the last two decades because of steep increases in global crude oil prices, taxes, and other factors. The following is a comprehensive account of petrol and diesel price history in India.

Petrol Price History in India

The data above shows how the petrol price has continually increased in the past years. The early 2000s range was almost stable when the price experienced minimal fluctuation between ₹30 and ₹40 per liter. However, due to the global financial crisis in 2008, crude oil increased, causing petrol to rise to ₹50 per liter. The trend continued in the following years because of high demand and geopolitics.

In 2010, the Indian government initiated the process of deregulation of petrol, opening up the scope for refiners to alter their prices for petrol according to the market situation. From then onward, the Indian petrol price showed a more scenario-based trend. Prices continued to surge and reached ₹76 in 2014.

The COVID-19 pandemic in 2020 created disruptions in the global oil supply chain but experienced temporary price fluctuations. However, by 2021, petrol prices crossed the ₹100 mark in various states. In 2024, petrol prices range from ₹82 in Andaman & Nicobar Islands to ₹108 in Andhra Pradesh.

Diesel Price History in India

Diesel was not so expensive as compared to petrol as diesel was subsidized by the government because it played a major role in the agricultural and manufacturing sector. However, it has increased significantly in recent years due to the removal of subsidies and deregulation of diesel prices.

The history of diesel prices mirrors the trend shown by the petrol prices. Once diesel prices were much lower than that of petrol for many years due to government subsidies. The diesel price, in the early 2000s, was regulated and sustained around ₹20 to ₹25 per liter.  Due to the global financial crisis, it went up to ₹35 per liter in 2008. Subsequent removal of subsidies caused diesel prices to follow the global market.

In 2014, the deregulation of diesel prices caused the prices to move to ₹55 per liter. Diesel prices rose to ₹74.34 per liter by 2018, thereby reflecting the rise in global crude prices and taxation.

The diesel prices had managed to remain on the higher side of the market due to the persistent demands, especially in the agricultural sector. In 2024, the prices of diesel are nearly bridging the gap with that of petrol in many areas.

Petrol and Diesel Prices Difference in India

Understanding the difference between petrol and diesel prices helps consumers, investors, and policymakers. Here’s a graph that shows the difference between the price of petrol and diesel in various Indian metro cities over the years.

Analysis of Price Differences

From the above tables, the trend we see is:

• Price Gap Reduced: The price gap between petrol and diesel has reduced significantly in Chennai and Delhi between January 2016 and October 2024. This indicates that the government’s policies to deregulate diesel prices have caused the price difference between diesel and petrol to decrease.

• Geographical Differences: State-specific taxes and logistics costs affect prices. For instance, in Mumbai, the price difference has not changed much over the years, whereas in cities like New Delhi, the gap has halved over the years.

• Market Dynamics: The market dynamics of supply and demand, coupled with the international crude oil prices, directly influence the price differences. The escalation in global oil prices affects both fuels; however, taxation policies by the government and market forces create a price differential between petrol and diesel.

Understanding the Consequences of Increasing Fuel Prices

The rising oil prices is a cause of concern for the economy as India imports 85% of its crude oil. Some of the most apparent impacts are as follows:

• Inflation: The rise in fuel prices increases transportation costs, which further contributes to the rising inflation. This increases the price of transporting goods, such as food, clothing, etc., leading to high prices for consumers.

• Automotive Industry Impact: The fuel-intensive sectors of logistics and transport industries grow increasingly less financially viable with increasing costs of operations. Such increases are likely to be passed onto the consumer in the form of increased fares of public transport and freight costs.

• Agricultural Impacts: Diesel prices influence prices of agricultural products as it is used as a fuel for tractors and trucks. Increased diesel prices push up the cost of production for the farmer, which is passed on to the consumer in the form of increased food prices.

• Consumer Spending: Fuel price hikes definitely reduce consumers’ disposable income, so they have to spend a greater percentage of their money on fuel. The savings money spent by them might indirectly influence several sectors of the economy through reduced expenditure on discretionary goods.

• Alternative Fuel: Rising petrol and diesel prices may lead to a shift to alternative sources, such as solar energy, wind energy, etc. Increasing fuel prices will naturally see customers look for a cheaper mode of transportation.

• Political Implications: When fuel becomes too expensive, the government comes under political pressure due to protests and demand for a subsidy, thereby affecting policy changes.

Future Outlook for Petrol & Diesel Prices in India

The future outlook for Petrol & Diesel prices in India will be influenced by the following factors:

• Global Oil Market: The global supply and demand change continuously, and fuel prices are bound to fluctuate.

• Government Policies: The change in taxation policies may raise or lower fuel prices.

• Electric Vehicles: EVs might become more popular and lead to reduced consumption of fossil fuels.

• Environmental Regulations: If stringent rules come in place, it would increase costs, hence affecting fuel prices.

• Geopolitical Issues: Any political instability in the oil-producing regions may immediately hike fuel prices.

• Technological Advance: Alternative fuels might replace petrol and diesel.

Conclusion

The diesel and petrol prices history in India explains the trends followed by the fuel prices in India and the impact of domestic policies on them. The decision by the Indian government to deregulate petrol and diesel has caused fuel prices to increase over the years. Until India completely adopts cleaner energy and EVs, petrol and diesel price changes will depend on global crude prices.

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