For cheap petrol, go to Andaman and Nicobar islands

We were sitting in a coffee shop at Century Bazar, sipping our coffee, listening to the loud music and looking at two girls trying to study in the noise.

It was threatening to rain outside. Inside the AC was working full blast.

“So why didn’t S come?” I asked.

“Oh, I was told, I should handle my own past,” she replied.

“Ah.”

“Never mind. It’s always better with just you around V,” she said. That immediately made my heart hopeful, but I had to change the topic.

“So, what have you been up to since last week?”I asked.

“Nothing yaar. Tell me something, why have petrol prices been on fire.”

“There are multiple reasons for it.”

“Explain them to me one by one,” she said “S is going to be late today. I am in no hurry.”

“The Saudi Aramco, the biggest oil company in the world, has an initial public offering (IPO) scheduled.”

“So?”

“Well, higher the price of oil, the better their valuation will be.”

“Ah, I get that. So, they are rigging the market.”

“Yes. The government of Saudi Arabia, the owner of Saudi Aramco, needs that money. Hence, until the IPO happens, oil prices are expected to remain high.”

“Hmmm.”

“Also, the value of the rupee has fallen against the dollar. At the beginning of April 2018, one dollar was worth Rs 65.1. Since then, it has fallen to Rs 68.1.”

“Why is that happening?”she asked, sipping her cup of a coffee with an unpronounceable name, while I was wondering why I had paid so much money for green tea.

“If you remember, for the last two weeks we have been discussing about foreign institutional investors selling out of the Indian stock market and the Indian bond market.”

“Of course. I listen to you very carefully V.”

“Since April 2018, foreign investors have sold stocks and bonds worth Rs 59,712 crore.”

“So?”

“When foreign investors sell stocks and bonds, they get money in rupees. They need to repatriate this money abroad. For that they need to convert rupees into dollars. This pushes up the demand for dollars and drives down the value of the rupee.”

“Interesting.”

“As the rupee loses value against the dollar, any import, including oil, becomes expensive. This leads to oil products like petrol and diesel becoming expensive,” I explained.

“Are these the only reasons?”

“No,” I replied. “Do you have a pen and a paper lying around?”

“Of course,” she replied, digging into her purse at the same time and coming up with a pen and a writing pad.

“Let’s take the example of petrol in Delhi. On June 21, 2018, the oil marketing companies sold petrol to dealers at a price of Rs 36.87 per litre. Over and above this, there was a dealer commission of Rs 3.62 per litre. The central government charges an excise duty of Rs 19.48 per litre. Adding all of this we get Rs 59.97 per litre.”

“But petrol prices are much higher than that,” she said, interrupting me.

“Yes. On the price of Rs 59.97 per litre, the Delhi state government charges an additional tax of 27%. This amounts to Rs 16.19 per litre. Hence, the retail selling price of petrol in Delhi on June 21, 2018, was at Rs 76.16 per litre.”

“Ah. But why is the price in Mumbai higher?”

“For the simple reason because taxes at the state level vary. In Mumbai, Thane and Navi Mumbai, the rate of tax is 39.12%, the highest in the country,” I explained.

“Where is it the least?”

“Andaman and Nicobar Islands. Just 6%. If other things remain the same, the price of petrol in Andaman and Nicobar would be around Rs 62-63 per litre.”

“That’s almost Rs 20 cheaper than Mumbai,” she said. “Time to take a holiday to Andaman. Will you come with me V?”

(The example is hypothetical)
Vivek Kaul is the author of the Easy Money trilogy.