‘Excise duty on petrol, diesel can be reduced by Rs 8.5 a litre without hurting revenues’

NEW DELHI: Petrol and diesel prices have touched historic highs following a relentless spike over the past nine months. Currently, a litre of petrol costs Rs 91.17 in Delhi and diesel is sold at Rs 81.47 a litre.
The prices remained unchanged for the fourth consecutive day on Wednesday as oil marketing companies (OMCs) decided to keep fuel rates static on the back of softening seen in international oil markets.
After a spike in global oil prices seen over last two weeks with crude price jumping close to $67 a barrel, prices have now fallen to around $63 a barrel over indications that production cuts would be eased by oil producers from next month.

This, along with ongoing pandemic and demand disruptions in few major markets has reduced the pace of oil price rise.
Analysts said that the government has room to cut excise duty on petrol and diesel by up to Rs 8.5 per litre without impacting its target for revenue from the tax on the two fuels.
“We estimate excise duty on auto fuels in FY22 (April 2021 to March 2022), if it is not cut, at Rs 4.35 lakh crore versus budget estimate of Rs 3.2 lakh crore. Thus, even if excise duty is cut by Rs 8.5 per litre on or before April 1, 2021, FY22E budget estimate can be met,” ICICI Securities said in a note seen by news agency PTI.
It expressed optimism for an excise duty cut given demand recovery, impending privatisation and inflation concerns but expected it to be more modest than Rs 8.5 a litre.
Excise duty was raised by Rs 13 and Rs 16 per litre on petrol and diesel between March 2020 and May 2020, and now stands at Rs 31.8 on diesel and Rs 32.9 per litre on petrol.
The increase in excise duty was to mop up gains arising from international crude oil prices falling to a two-decade low.
But, with oil prices recovering, it has not yet restored the taxes to their original levels.
“If the cut is more modest, which we expect, FY22 excise duty will be higher than the budget estimate,” ICICI Securities stated.
About 60 per cent of the petrol price and 54 per cent of diesel is made of state and central taxes.
The rates of regular petrol had last month crossed the Rs 100-mark at a few places in Rajasthan and Madhya Pradesh, which levy the highest value-added tax (VAT) on the fuel in the country.
Between November 2014 and January 2016, the government had raised excise duty on petrol and diesel on nine occasions to take away gains arising from plummeting global oil prices.
In all, duty on petrol rate was hiked by Rs 11.77 per litre and that on diesel by 13.47 a litre in those 15 months that helped the government’s excise mop-up more than double to Rs 2,42,000 crore in 2016-17, from Rs 99,000 crore in 2014-15.

The government had cut excise duty by Rs 2 in October 2017, and by Rs 1.50 a year later. But, it raised excise duty by Rs 2 per litre in July 2019. It again raised excise duty on March 2020, by Rs 3 per litre each.
In May that year, the government hiked excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre.
Since fuel prices are benchmarked to a 15-day rolling average of global refined products’ prices and dollar exchange rate, pump prices can be expected to remain northbound over the next few days even if crude price stabilise.
Oil companies executives said that petrol and diesel prices may increase further in coming days as retail prices may have to be balanced in line with global developments to prevent OMCs from making loss on sale of auto fuels.
(With inputs from agencies)

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