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What you actually pay for in a litre of petrol

यह लेख अभी सिर्फ़ अंग्रेज़ी में है। हिंदी संस्करण जल्द आएगा।

Most people see one number on the pump display. Behind it sit four layers, and each one moves for a different reason. Understanding them explains why the same litre costs different amounts in different cities.

Refinery price

Crude oil, refining and freight.

Central excise

A fixed amount per litre.

Dealer commission

What the pump owner earns.

State VAT

Set by each state.

1. The refinery price

This is the cost of the fuel itself: crude oil, refining it into petrol, and moving it to the depot. It follows global crude prices and the rupee. When crude rises or the rupee weakens, this layer gets more expensive.

2. Central excise duty

The Centre charges a fixed amount on every litre, the same everywhere in India. Because it is a fixed rupee amount and not a percentage, it does not rise automatically when crude rises. Governments change it as a policy decision.

3. Dealer commission

This is what the petrol pump owner earns per litre. I grew up around one, and I can tell you this layer is small. It has to cover staff, electricity, maintenance and every other cost of running the forecourt.

4. State VAT

Each state sets its own VAT, often as a percentage. Because it is charged on top of the other layers, it grows when they grow. This is the main reason petrol costs different amounts in different cities.

Why it matters for inflation. Fuel feeds into almost everything: transport, food and goods. When pump prices move, they move consumer prices with them. That link is the subject of my research on fuel prices and India's CPI.
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