One could, of course, place the blame squarely on the nature of our politics. We have been in an election mode ever since oil prices started their upward march. This has limited the manoeuvrability of the Central government to align domestic prices to international trends. Also, the Left has hardly been cooperative. However, this is in my view too generic a response. It suggests that our political system is fundamentally regressive.

I have a more specific explanation. It has to do with inter ministerial turf battles, lack of leadership and the weakening hold of the Central government over state governments. Let me explain this point through the structure of the price buildup for petrol and diesel.

Indian Oil Corporation (IOC) calculates inter alia the landed import duty paid price of petrol and diesel every fortnight. This calculation is based on a formula that is linked to international prices. IOC’s landed price of petrol in Mumbai for the second fortnight of May was, for instance, Rs 38.1 per litre and for diesel Rs 48.8 per litre. The marketing companies had to, in other words, pay this amount to the refiners to buy the products. Next, the Central government imposes an excise and educational cess on the purchase cost. In May, this was Rs 14.4 per litre and Rs 0.4 per litre for petrol and Rs 4.6 per litre and Rs 0.1 per litre for diesel respectively. The total cash required by the marketing companies to purchase petrol and diesel in May was, therefore, Rs 52.9 per litre for petrol and Rs 53.6 per litre for diesel. The companies then sell these products at the ministry of petroleum mandated price of Rs 49.7 per litre for petrol and Rs 35.6 per litre for diesel (Mumbai prices). As such, they lose Rs 3.2 and Rs 18 for every litre of petrol and diesel sold respectively.

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