Petrol and diesel prices have been in focus since the start of the US-Iran war which has led to a huge rise in global crude oil prices. Several neighbouring countries have either raised petrol prices or rationed its use. In India, the government has cut the excise duty on both petrol and diesel, with an aim to absorb the global crude oil shock.The government has announced a reduction in excise duty on petrol and diesel. While excise duty on petrol has been cut, the levy on diesel has been removed altogether with an aim to cushion consumers from the surge in global crude oil prices triggered by the ongoing Middle East conflict.
Global Price Hike That Led To Excise Duty Cut
International crude prices have climbed nearly 50% since the United States and Israel carried out strikes on Iran on February 28, prompting strong retaliation from Tehran. Global oil prices had briefly surged to $119 per barrel earlier this month amid escalating tensions involving Iran, before easing to around $100 per barrel.India depends on imports for about 88% of its crude oil requirements and roughly half of its natural gas needs, much of which passes through the Strait of Hormuz. Following the attacks on Iranian government, military and nuclear facilities, Tehran warned vessels to avoid the route, while insurers withdrew coverage, effectively disrupting tanker movement.What the rising global crude oil prices have led to is a pressure on oil marketing companies which have not raised prices and have so far been absorbing the rise in crude prices.In a notification issued late on March 26, the Finance Ministry lowered the excise duty on petrol from Rs 13 per litre to Rs 3, while cutting the duty on diesel from Rs 10 per litre to zero. The revised rates came into effect immediately.
- Following the cut in excise duty, the total tax incidence on petrol now stands at Rs 11.9 per litre, which includes Rs 1.40 as basic excise duty, Rs 3 as special additional excise duty, Rs 2.50 as agriculture infrastructure and development cess, and Rs 5 as road and infrastructure cess.
- For diesel, the overall duty has been reduced to Rs 7.80 per litre, including Rs 1.80 basic excise duty, Rs 4 agriculture infrastructure and development cess, and Rs 2 road and infrastructure cess.
- Based on annual consumption of around 175 billion litres of automotive fuel, including 115 billion litres of diesel and 60 billion litres of petrol, the reduction in duties is estimated to have a financial impact of about Rs 1.75 lakh crore each year.
- This relief is being offset against the price increases of roughly Rs 24 per litre for petrol and Rs 30 per litre for diesel that would otherwise have been required due to rising global crude oil prices.
Will Petrol, Diesel Prices Come Down After Excise Duty Cuts?
Excise duty is a tax imposed by the central government on fuel, and it forms a significant part of the retail price of petrol and diesel. When this duty is high, it directly pushes up the price consumers pay at the pump. A reduction in excise duty lowers this tax component, which can either bring down retail prices or help oil companies offset rising crude costs without increasing prices, thereby easing the burden on consumers.Despite the sharp rise in global oil prices, retail fuel rates have remained unchanged, putting pressure on the finances of oil marketing companies. The duty reduction is intended to ease this strain and provide some relief to these firms.Earlier, rating agency ICRA had indicated that if crude prices average between $100 and $105 per barrel, fuel retailers could face losses of around Rs 11 per litre on petrol and Rs 14 per litre on diesel. It had also suggested that a reduction in excise duties could help maintain stable retail prices while giving companies more room to offset refining losses.The government’s intention of cutting excise duty and taking a tax revenue hit is to prevent a pass-on of higher crude prices to consumers in the form of a petrol and diesel price hike. Hence, the current excise duty cut is unlikely to result in petrol, diesel prices coming down for you. In effect, the aim is to maintain the petrol, diesel prices at current levels, so that consumers don’t bear the brunt of rising global oil prices.Hence, retail prices of petrol and diesel by state-run oil companies such as Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are expected to remain the same: No cut, no hike!State-run fuel retailers account for around 90% of the market. In Delhi, petrol continues to be sold at Rs 94.77 per litre, while diesel is priced at Rs 87.67 per litre.Meanwhile, private fuel retailer Nayara Energy, which operates 6,967 outlets out of India’s 102,075 petrol pumps, has partially passed on higher input costs by increasing petrol prices by Rs 5 per litre and diesel by Rs 3 per litre. Petrol at its outlets is now priced at Rs 100.71 per litre, while diesel costs Rs 91.31 per litre.Jio-bp, the fuel retailing joint venture between Reliance Industries and BP Plc with 2,185 outlets, has not raised prices so far despite facing significant losses on fuel sales.Last week, state-owned oil marketing companies raised prices of premium petrol variants by over Rs 2 per litre. The hike applies only to high-performance fuels such as BPCL’s Speed, HPCL’s Power and IOCL’s XP95, with increases ranging from Rs 2.09 to Rs 2.35 per litre.
What government said on excise duty cut
Finance Minister Nirmala Sitharaman said in a post on X that the excise duty reduction “will provide protection to consumers from rise in prices,” adding that the government remains committed to shielding citizens from fluctuations in supply and costs of essential commodities. She also noted that export duties of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel have been imposed to ensure sufficient availability within the domestic market.Oil Minister Hardeep Singh Puri said global crude prices have surged sharply over the past month, rising from around $70 per barrel to nearly $122. He pointed out that fuel prices have increased significantly worldwide, with rises of about 30 to 50 per cent in Southeast Asia, around 30 per cent in North America, 20 per cent in Europe and roughly 50 per cent in Africa. He added that the government faced a choice between sharply raising domestic fuel prices or absorbing the financial burden.Reiterating the approach followed since the Russia-Ukraine conflict began, he said the government has once again chosen to absorb the impact to protect consumers.“The government has taken a huge hit on its taxation revenues to ensure very high losses of oil companies (approximately Rs 24 per litre for petrol and Rs 30 a litre for diesel) at this time of sky high international prices are reduced,” he said.
