This piece of mine on the economy tried to show how horribly messedm the situation is. However, there is another front where the picture is equally depressing. You have been fed all along that the “underrecoveries” and subsidies are the reason the Oil Marketing Companies (OMCs) in India are doing so badly, but is this REALLY the case? This story, is more like Sidhu’s miniskirts: What is not revealed, is more important that what is! Part 1: The Petrol Pilferage Here is the breakup of the Petrol Price in Delhi as provided by IndianOil.
| International Price of Gasoline (Cost & Freight) |
$/barrel |
115.25 |
| This in effect, is (@ exchange rate of ₹/$=61.88) |
₹/l |
44.86 |
| The OMCs buy from the refineries at |
₹/l |
45.71 |
| And sell it to dealers at |
₹/l |
48.12 |
It all seems reasonable until now, but this is where the fun part is.
| The dealer takes as commission: |
₹/l |
2 |
| Specific Excise Duty |
₹/l |
9.48 |
| VAT @ 20% |
₹/l |
11.92 |
| So You finally pay |
₹/l |
71.52 |
Simply put, out of the ₹71.52 you pay, ₹21.40 go as taxes to the government (that’s 30% of the final price), and the OMCs make a profit of ₹2.41. So where is the subsidy or loss? And mind you, it would get worse, if the exchange rate tanked further. The import price would increase, as would the VAT the government charges. So in effect, revenue-wise the government stands to benefit from the tanking rupee, as YOU will subsidise the increase in costs because of it. Part 2: The Diesel Deception Diesel, they’ll tell you is still “regulated”. But the level of deception/overcharging is just as bad:
| International Price (Cost & Freight) | $/bbl |
128.89 |
| At an Exchange rate of ₹61.88 to the dollar, this is: | ₹/l |
49.56 |
| Price Paid by the OMCs to Refineries (after import/customs etc) | ₹/$ |
50.82 |
| The OMC’s Total Costs (including marketing costs etc) | ₹/l |
53.28 |
Now here, the government brings in a twist. The OMC should ideally break even, if it sells at ₹53.28/l But it tells them a poor country like India, cannot afford such a high price, and imposes an “underrecovery” of ₹10.48, telling them they will reimburse the same. And how do they manage to get the money for that? Here goes:
| Under-recovery on the total costs (in other words, a subsidy) | ₹/l |
-10.48 |
| The dealer pays the OMC: | ₹/l |
42.80 |
| His Commission | ₹/l |
1.19 |
| Excise Duty | ₹/l |
3.56 |
| VAT | ₹/l |
6.23 |
| What you pay | ₹/l |
53.78 |
The taxes charged almost exactly make up for the underrecovery. In other words, it’s like telling the OMCs, never mind, we shall refund the underrecovery, that’s because we’re taxing the poor aam aadmi almost as much (and until a couple of months back, the taxes exceeded the underrecoveries by ₹3/l so it was in effect, a negative subsidy)! And now that they’re going to deregulate diesel, the government gets to keep all of the Excise and VAT duties it collects as above, because there will be no “underrecoveries” to refund the OMCs. So expect a ₹11 increase in diesel prices over the next year! That is the real story behind oil prices you never get to hear.
Random Rambuctious Rambles 