🚗 Why Petrol Prices in India Are Higher Than Other Countries: The Truth Behind Taxes, GST & Government Strategy

Introduction

In 2025, while crude oil prices have fallen globally, petrol prices in India remain among the highest in the world. Even countries that import more oil than India pay less per litre. Why? The answer lies in the layered taxation model, strategic fiscal planning, and India's unique dependence on fuel as a revenue stream.

This blog uncovers the real reasons behind high petrol prices in India, explores how taxes and GST exclusions play a key role, and reveals how this pricing strategy impacts everyday citizens and the economy.

📈 Petrol Price Breakdown in India

As of July 2025, a litre of petrol in major cities like Delhi or Mumbai costs ₹100–107, while the base price of crude oil accounts for only a small portion:

Component Approx. Share of ₹1 Litre Petrol

Base Price (Import) ₹24’30

Central Excise Duty ₹22’25

State VAT ₹20’26

Dealer Commission ₹3’4

Freight + Overheads ₹3’4

Final Price ₹100–107

💸 Why Is Petrol Expensive in India?

1. High Central and State Taxes

Petrol is excluded from GST, allowing Centre and States to impose separate taxes.

Central government levies excise duty, while states add Value Added Tax (VAT).

In some states like Maharashtra and Andhra Pradesh, VAT can be over 30%.

2. Revenue Source for Governments

In FY 2024, over ₹12 lakh crore was collected via petroleum taxes.

These taxes help fund subsidies, infrastructure, defense, and welfare schemes.

For many states, petrol and alcohol are top two non-GST revenue sources.

3. Petrol Excluded from GST: Strategic Move

Including petrol under GST would cap tax at 28% max, reducing both state and central revenue.

Governments avoid this to retain flexibility and increase collection based on fiscal needs.

4. Oil Bonds and Fiscal Legacy

The government still services oil bonds issued during 2005–2010, worth over ₹1.3 lakh crore.

These legacy debts impact current fiscal space, justifying higher indirect taxation.

🚕 Global Comparison: Why India Pays More

Country Avg. Petrol Price/Litre (₹) Notes

India ₹100–107 Heavy tax load; not in GST

U.S. ₹60–70 Minimal fuel taxes

UAE ₹65–75 Government-regulated; oil-rich nation

Pakistan ₹80–95 Government subsidies

UK ₹125’130 High tax but stronger currency

Note: India imports over 85% of its crude, but other countries often have subsidies, stronger currencies, or oil reserves.

🤔 The Hidden Strategy Behind High Fuel Costs

Inflation Tolerance: Petrol price hikes act as a silent tax on the middle class, with less political resistance than direct taxes.

Behavioral Economics: High fuel prices discourage overuse and import dependence.

Revenue vs Popularity Trade-Off: Lowering fuel prices would increase government popularity but reduce critical revenue.

❓ Why Not Include Petrol in GST?

Including petrol in GST would lead to:

Lower prices for consumers

But a massive shortfall in central and state tax income

States would lose one of their most flexible and significant revenue tools

Thus, while it was proposed during GST rollout, it remains politically and financially unviable for now.

🚫 Impact on Common People

Higher transportation costs, food inflation, and reduced disposable income

Small businesses struggle due to higher logistics cost

Lower savings for middle-income families

🔹 Lesser-Known Facts

Petrol taxes are not shared between Centre and States equally

India taxes fuel for personal use higher than aviation fuel for airlines

Petrol and diesel prices don’t follow daily dynamic pricing transparently anymore

Government often adjusts excise duties silently instead of changing retail prices

⚠️ Disclaimer

> This blog post is based on data available as of July 2025. Prices, tax structures, and policies may change based on fiscal budgets, global crude rates, and government strategy. Always refer to official government sources and notifications for the latest figures.