Pricing of petroleum products in India

Abstract

Oil and energy industry is one of the most import sectors of the world economy. As a consequence of that, various aspects of the energy industry are of great importance for a fast growing economy like India. Considering that India imports seventy prevent of its crude oil requirements, pricing and taxation of petroleum products in India has been an issue involving vigorous and sometimes contentious debate and discussion in India. In this study, we have analyzed the various aspects of pricing and taxation of petroleum products with a view to understanding the microeconomic and macroeconomic conceptual underpinnings which guide the above decisions. We have started with an analysis of the world oil and gas industry. Then we have moved to the economic aspects of refinery operations. We have then proceeded to make an analysis of the evolution and development of the Indian oil and gas industry. Finally we have made a critical study of the various pricing regimes in vogue since the country became independent and the microeconomics and macroeconomic underpinnings behind them. We have started with the Valued Stock Agreement of 1948 and moved to the establishment of the Oil Pool Account and the subsequent establishment of the Administered Pricing Mechanism. Then we have analysed the dismantling of the APM and coming into force of the Market Determined Pricing Mechanism. The pricing principles have moved from Import Parity Pricing (IPP) when India was a net importer of petroleum products to Trade Parity Pricing (TPP) now that India has become an exporter of petroleum products as well.