The fluctuation in diesel price is due to various national and international components that make-up diesel price. Having a basic idea about all such factors would help understand how diesel is priced in Madhya Pradesh and also in rest of the country.
Components Involved in Diesel Pricing in Madhya Pradesh
Diesel price in Madhya Pradesh, just like in any other Indian state, is made up of various domestic and international elements. All such elements are related to fuel extraction, refining, transportation and marketing and hence play a key role in bringing diesel from beneath the ground to the retail fuel stations.
Crude oil exploration and extraction is typically done in other countries where fuel reserves are high. Though India also has some crude oil reserves, the production from all such reserves is not sufficient to cater the demand. Therefore, India imports over 70% of its crude oil requirements from other countries. Hence, the price at which the countries sell the crude oil to Indian oil companies becomes the major component of diesel price in Madhya Pradesh.
Currently, the central government charges an excise duty of Rs.15.33 per litre of diesel. The excise tax remains same across all the Indian states and so in Madhya Pradesh.
Madhya Pradesh government collect VAT of 23.22% per litre of diesel which is second highest in the country. The reason why diesel rate in the state often touches Rs.80 is mainly because of high tax rates imposed on diesel. If there is a downward revision in the tax rates, the price of diesel in Madhya Pradesh may come down.
Factors Affecting Diesel Price in Madhya Pradesh
Once you understood the various elements that contribute to diesel pricing in India, it now becomes easy to understand the factors that affect the price on a daily basis.
Of the various components involved in diesel pricing, international crude oil price and currency exchange rate are the two factors that affect the price on a daily basis. Let’s see how and why they show a constant impact.
International crude oil price, as discussed earlier, is dependent on various other factors including demand and supply metrics, production output, weather conditions, political stability, etc., in the oil-producing nations. Shortage in the supply of crude oil increases the price of crude oil whereas an increase in supply leads to decrease in the price. Further, the inventory maintained by Indian oil refining and marketing companies also influences the price of crude oil.