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Microeconomics: is the study of economics at an individual, group or company level.

This involves the study of economy at micro level like studying the supply and demand for a
specific product, effects of raising wages of employees, rate of interest on borrowers etc.

How the price of gasoline is determined in India?

The price of petrol and diesel affect almost every citizen in India. The prices of these change
every fortnight based on international crude-oil price and tax-rate. Though there are many
factors accounting for gasoline prices in India, the main factors include:

Crude-Oil Prices:
The price of crude oil averaged 68% of the average retail cost of gasoline. As it is known that
the gasoline is extracted from Crude-oil, any changes in crude price with respect to the
benchmark crude will have a high effect on gasoline price. India being largely relied on its
refinery sector and importing of crude, it has no control over the crude price and any increase
in crude price must result in increasing the gasoline price in India.

In general, the price for crude oil is widely quoted for light/sweet crude. As oil gets thicker or
heavier it contains more impurities and requires more processing to convert into gasoline. As
a supply for sweet crude becomes more constrained, the price climbs. Refining heavy crude
requires heavy capital investment to process lower quality oil. This makes the refiners to
buy poor quality crude to get return on investment.


The demand for gasoline is primarily set by the number of people using the fuel for
transportation. India, with a population of 1 billion is experiencing an expanding middle class
that have greater chances of using gasoline. India, subsidizing the retail price of gasoline,
promoting Industrial development, support of the people made an artificial greater demand
for gasoline.

Inflation, the general rate at which the prices of goods and services are raised also has an
effect on the price of gasoline.


Cess duty, pollution taxes and special state taxes have to be paid by the refiners and the
distributors that add to the overall price that a consumer has to pay.

Political factors:

The gasoline price in India is set by State owned oil companies like ONGC, IOCL based on
the international crude oil price and added taxes. As these are State owned companies there
are regulations that they cannot change the prices during the time of election code. Thus, to
compensate the daily changes at those times, the prices are hiked beforehand. Different
norms laid for refineries also account for change in crude oil prices.

Reference: Petroleum Planning and Analysis Cell, Government of India.