In India, the retail price of Petrol was de-regulated in 2010 while Diesel was de-regulated in 2014. While the deregulation was supposed to result in freedom for OMCs to fix retail prices based on global crude prices, the widely held belief is that the government unofficially controls the prices during elections. Does data support this belief?
Retail prices of Petrol & Diesel have increased for the ninth time in the past 10 days. During this period, the fuel prices increased by around Rs. 6.40 per litre. Around this period, the international price of crude also increased by around USD 6 per barrel. This increase in prices is after a few months of fuel prices remaining the same, to be specific Diesel prices from early November 2021 and Petrol prices from early December 2021. During this period, the price of international crude increased by around USD 40 per barrel.
Russia’s attack on Ukraine, increasing consumer demand as countries are emerging out of the COVID-19 pandemic etc. are the major reasons cited for the increase in the international crude price.
As highlighted, while there was a surge in the international crude prices since December 2021, there has been no change in the fuel prices in India, until the recent increase in the past 10 days.
One has to note that since 2010, the petrol prices are deregulated in India while diesel prices were deregulated in 2014. This technically implies that, unlike before de-regulation, the government of India does not intervene in fixing the retail prices of fuel and they are supposed to be linked to the international crude prices, as India imports close to 90% of the crude oil requirement.
However, as is the widely held belief, the government seems to be unofficially controlling the retail prices of petrol & diesel during politically sensitive periods such as elections. The recent assembly general elections in 5 states are a case in point where the retail price of petrol & diesel remained the same for a few months despite a sharp increase in international crude price. The prices are currently being revised daily to be in line with global crude prices now that the elections are over.
Does data support this trend of unofficial control of retail prices of petrol & diesel during elections despite changes in international crude prices? We look at historical data from 2015-16 to understand if this trend has been consistent over the years.
Data Sources: OPEC Basket Price is considered the standard reference for international crude prices. Retail fuel price in New Delhi based on the information provided on the website of Petroleum Planning and Analysis Cell (PPAC) is considered. It must be noted that city-specific data is not available prior to 2017 with the PPAC.
For the context of the story, the period between 01 January 2015 and 31 March 2022 is categorized into four periods (2015-2016, 2017-2018, 2019-2020 & 2021- 31 March 2022). The changes in international crude price during these periods are compared with the trends in the retail fuel price including the impact of elections if any during these years.
2015 & 2016
Two separate sets of elections took place during 2015-2016. In 2015, assembly general elections were held for Bihar & Delhi. While the Delhi elections were held in January/February of 2015 (from notification to the results), the elections in Bihar were held between September & November of 2015 (from notification to the results).
During this period, OPEC data indicates that crude prices fluctuated with an increase followed by a decrease. On 16 September 2015 when the notification for the first phase of Bihar elections was released, the price of crude was USD 44.57 per barrel. It increased to USD 48.79 per barrel by 09 October 2015. After this peak, the price fell to USD 42.72 per barrel by 06 November 2015. Polling for the last phase of the Bihar elections was completed on 05 November 2015.
However, all through this period, the price of Petrol remained constant at Rs. 61.2. However, in the case of Diesel, the price increased slightly from Rs. 44.45 to Rs. 45.93 per litre. During the other months of 2015, the retail price of petrol & diesel changed in accordance with the price of crude in the international market. In both states, the BJP was the main contender for power.
During December 2015 & January 2016, international crude prices were at record lows. However, the retail price of petrol & diesel did not decrease proportionally as there was a corresponding increase in the central excise duty in December 2015 & January 2016.
During the year 2016, Assembly elections were conducted in 5 states – Assam, Kerala, Tamil Nadu, West Bengal & Puducherry. The notification was issued on 11 March 2016 and the counting was held on 19 May 2016.
During this period, the price of crude increased from USD 35.62 per barrel to USD 38.46 per barrel. In contrast to the elections in 2015, there was a proportional increase in the prices of Petrol. The price of diesel also increased during this period in accordance with the crude price. Out of the 5 states which went to the polls, BJP was a key contender only in Assam in the year 2016.
2017 & 2018
In 2017, Assembly elections were held in 7 states. For the five states of Goa, Manipur, Punjab, Uttar Pradesh & Uttarakhand, the elections were held between 04 February 2017 to 09 March 2017. The international crude prices fluctuated (increased & decreased) slightly during this period. However, the retail prices Petrol & Diesel prices remained constant at Rs.71.4 and Rs. 51.2 per litre respectively. BJP was a contender in all these five states.
Gujarat & Himachal Pradesh went to the polls from mid-November 2017 to mid-December 2017. There was a slight increase in the international crude prices during this period coinciding with a slight fall in the retail price of Petrol. However, there was only a slight increase in the price of diesel.
In 2018, there were two sets of elections. Nagaland, Meghalaya & Tripura went to the polls in January 2018 while Telangana, Chhattisgarh, Madhya Pradesh, Rajasthan & Mizoram went into the polls during October -November 2018. During this election period, there was a fall in the price of Crude from around USD 79.31 per barrel to USD 65.28 per barrel. This fall in the crude translated into a fall in the retail prices as well.
2019 & 2020
In 2019, apart from the General Elections for Lok Sabha, Assembly elections were held in three different periods.
Assembly elections in Sikkim, Odisha, Andhra Pradesh & Arunachal Pradesh were held along with the Lok Sabha general elections in May 2019. During this period, there was a fall in the global crude prices which was reflected in the prices of both petrol & diesel. Prior to this period in April 2019, there was a slight increase in the prices of crude, with a subsequent increase in retail prices.
Maharashtra & Haryana went to the polls between 27 September 2019 and 24 October 2019. While there have been fluctuations in the international crude prices during this period, the prices of Petrol & Diesel remained constant at Rs. 81.06 and Rs. 70.46 respectively. Despite an increase in crude prices, the retail prices remained constant for more than a week after these elections. This was followed by a period of increased crude oil prices, which also resulted in increased Petrol & Diesel prices. Jharkhand went to the polls in December 2019.
The assembly elections in Delhi were held between 14 January 2020 & 11 February 2020. During this period, there was a slight increase in international crude prices, but the prices of Petrol & Diesel remained constant.
The assembly elections in Bihar were held in October & November 2020 (from notification to counting). This period also coincided post-recovery period after the first wave of the COVID-19 pandemic. The international crude prices fluctuated during the period, with multiple increases. However, the retail price of petrol & diesel remained largely constant at Rs. 81.06 and Rs. 70.46 per litre respectively.
In May 2020, the retail price of petrol & diesel increased substantially despite record low crude prices on account of a steep increase in the central excise duty.
2021 & 2022
2021 was beset with further waves of the COVID-19 pandemic as well as recovery in various phases. After fall in the international crude prices in 2020, there was an upward trend in the prices in 2021 with an increase in demand.
Assembly elections were held in the five states of Assam, Puducherry, Tamil Nadu, West Bengal, and Kerala between March 2021 & May 2021. During the latter part of this period i.e., during April 2021, there was an increase in the international crude prices. However, the retail prices for both petrol & diesel remained constant during the first half of April, then decreased slightly, followed by being constant for rest of this period.
Immediately after the election, despite a general trend of fall in crude prices, the retail prices of petrol & diesel increased.
In 2022, as highlighted, elections were held for the five states of Uttar Pradesh, Punjab, Uttarakhand, Goa & Manipur. Despite a major surge in the prices of international crude, there was no increase in the prices of petrol & diesel in the months leading to elections and during the elections. Prices started to increase only a couple of weeks after the elections.
Retail prices remaining constant despite increased Crude prices during elections is a common trend
During the non-election period, two broad trends were observed,
- Increased retail prices when there is a corresponding increase in the international crude prices.
- Prices remained constant even when there is a fall in the international crude prices.
Barring rare exceptions, both these trends did not hold during the election period. During the election period since the de-regulation of retail fuel prices, the following broad trends were observed.
- Retail prices remained constant or changed slightly depending on the state which went to the polls despite a general trend of increase in global crude price.
- Retail prices fell like in the case of Gujarat (2017) when the international crude prices fell slightly, contrary to the broad trend during non-election periods.
Another broad trend observed over these years since the deregulation of fuel prices is an increase in the fuel prices immediately after elections irrespective of the international trend.
To summarise, data from 2014 supports the belief that though retail fuel prices have been de-regulated since 2014, they are unofficially controlled by governments during politically sensitive periods like elections, irrespective of the increasing trend in global crude price.