The Indian state Tamil Nadu is located in the southernmost part of Indian peninsula. Major cities in the state include Chennai, the capital and the largest city, Coimbatore, Madurai and Salem.
Diesel Price in Tamil Nadu Compared to other South Indian States
Diesel price in Tamil Nadu compared to other south Indian states such as Andhra Pradesh, Telangana, Karnataka, and Kerala is the second lowest with a liter of diesel trading at Rs.60.02/Lt on 13 October 2017. The lowest price in offered in Karnataka, which abolished entry tax on diesel leading to reduced fuel prices in the state.
Factors Affecting Diesel Price in Tamil Nadu
Tamil Nadu, similar to other Indian states, levies value added tax (VAT) on every litre of diesel sold in the state. The rate of tax is what makes diesel price in Tamil Nadu different from other states. Therefore, tax becomes the primary factor that affects diesel price in the state. Any revision, either upward or downward, would directly impact the price of diesel across all the cities and towns in Tamil Nadu.
Besides the state specific tax, other factors that commonly affect diesel price in Tamil Nadu and in other Indian states are
- International crude oil prices
- Currency exchange rate
- Central government taxes
- Profit margins and dealer commissions
The two factors that impact diesel price on a daily basis are the global crude oil prices and the currency exchange rate.
- Crude Oil Prices: Ever since dynamic fuel pricing was implemented in India, diesel prices in India are aligned with the international crude prices on a daily basis.
- Currency Exchange Rate: The second element that affects the diesel on a daily basis is the US dollar to Indian rupee exchange rate. Globally oil trading happens in US dollars. Whenever the dollar value strengthens, oil companies have to shell out more money to purchase oil, hence the fluctuating dollar price becomes another factor that affects diesel price.
- Central Taxes: Just like the state governments, the central government also earns significant revenue on diesel by collecting excise duty on every litre of diesel sold in the country. Though the excise duty does not change on a daily basis, any revision in the tax would affect the diesel price across the country. Recently, there was a reduction in the excise duty on diesel by Rs. 2/Lt, effective from 4th October, which brought down diesel rate across the country.
- Profit Margins and Dealer’s Commission: Who would do a business without profits and so are the Indian oil companies and petrol pump dealers. The downstream oil market in India, which includes refining, processing and purifying of crude oil, along with the marketing and distribution of end products, is dominated by state-owned oil companies such as Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum, which captured more than 90% market share.
State Taxes and Diesel Price in Tamil Nadu
The Tamil Nadu government currently levies value added tax (VAT) of 25% on a litre of diesel, which compared to other south Indian states in the second lowest with the lowest levied by Karnataka government.
The latest tax revision in the state took place in March 2017, when the government increased the tax from 21.4% to the current 25%. VAT on petrol was increased from 27% to 34%. With the revised tax rate, diesel in the state became costlier by Rs.1.70/Lt and petrol by Rs.3.78/Lt in the same month.
Diesel Costs versus Petrol Costs in Tamil Nadu
The average price difference between petrol and diesel in Tamil Nadu is about Rs 10-11/Lt. The difference in price is mainly due to the difference in the VAT being levied on both the commodities.
Currently, the central excise duty on diesel is Rs. 15.33/Lt, whereas on petrol it is Rs. 19.48/Lt. Similarly, the VAT charged by Tamil Nadu government on diesel is 25%, while it is 34% on petrol.