A substantial drop in global oil prices and the strengthening of the rupee are expected to lead to a significant decrease in petrol and high-speed diesel (HSD) prices in the upcoming review.
The potential decline, up to Rs20 per liter for HSD and Rs38 per liter for petrol, could be the most substantial single reduction in fuel prices. However, it’s essential to note that the caretaker government holds the authority to make final decisions, particularly concerning HSD.
Presently, HSD carries a petroleum development levy of Rs50 per liter, while petrol bears a levy of Rs60 per liter. The government aims to collect around Rs869 billion in levy on petroleum products to meet the budget target and fulfill commitments with the International Monetary Fund (IMF).
Should these changes come into effect, it would mark the second consecutive reduction in petroleum prices by the caretaker government, following three consecutive increases. Between August 15 and September 15, petrol and high-speed diesel prices had reached historic highs of Rs331-333 per liter at retail.
The government currently imposes approximately Rs82 per liter in tax on petrol and Rs73 on high-speed diesel. Although there’s currently no general sales tax on petroleum products, there is a petroleum development levy of Rs60 per liter on petrol and Rs50 per liter on HSD, among other fuels.
For the past month, petrol and diesel prices have consistently exceeded Rs300 per liter, contributing to high consumer prices and inflation rates of 31.4 percent in September. The expected reduction in fuel prices could help alleviate the burden on consumers.
Sources suggest that, based on current tax rates and other factors, petrol prices could potentially decrease by Rs36-38 per liter. This is due to a notable 12 percent reduction in its international price, from $99 per barrel to $87, along with a more than 4 percent appreciation of the rupee against the US dollar.
Similarly, HSD prices in the global market have decreased by about $8 per barrel in the last two weeks. With the rupee’s strengthening and stable import cargo premiums, the cost and freight price for HSD is likely to decrease by Rs22 per liter.
It’s important to highlight that both petrol and HSD prices are significant revenue sources for the government, with substantial monthly sales. Their prices directly impact various sectors of the economy and household budgets, making these potential reductions especially meaningful for the middle- and lower-middle-class segments.
