After excise cut, FM says growth can aid recover revenue losses; Pradhan says Centre will ask states to cut VAT

Amid a public outcry over rising fuel prices, the government had reduced the basic excise duty on petrol and diesel by 2 rupees per litre, effective October 3.

Subsequently, petrol price was cut by Rs 2.5 per litre and diesel by Rs 2.25 following the reduction in excise duty on auto fuels. Petrol in Delhi now costs Rs 68.38 a litre, down from Rs 70.88. A litre of diesel now comes for Rs 56.89 as against Rs 59.14 previously, according to Indian Oil Corp (IOC), the nation's largest fuel retailer.

Finance Minister Arun Jaitley told CNBC-TV18 that economic growth can aid in recovering revenue losses due to fuel excise cut.

"Some state governments, particularly Kerala, Delhi, were in the forefront highlighting their concerns over high fuel prices. Now they should look at their own VAT collections. We must bear in mind that a large part of what is collected from petroleum products also goes to the States. Therefore, a larger part of the oil kitty goes to the States. So, some part of the impact States also must bear."

"A lot of revenue that comes to State and Centre from the fuel is used for infrastructure development and social spending," he said. 'The reason why the government was able to expand infrastructure was because there was additional revenue. But recently, some global issues led to rise in oil prices."

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AK Sharma

Director-Finance|IOC

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Also, Oil Minister Dharmendra Pradhan said the Centre will request states to reduce value added tax on diesel and petrol by 5 percent. He said Finance Minister Arun Jaitley will write to the state FMs for reduction of VAT on fuel.

Earlier in the day, CNBC-TV18 had reported that states have been asked to review value added tax on petrol and diesel. An official said the Centre expects states to reduce VAT on petrol and diesel. It has also asked oil marketing companies to review petrol and diesel prices. States are likely to cut VAT by Rs 2 per litre while OMCs are likely to cut prices by Rs 1 per litre.

There is a need to reduce petrol and diesel prices by Rs 4-5 per litre, the official said. “Rs 65 per litre is an acceptable retail selling price for petrol,” the official added. Government officials indicate that a price cut of Rs 5 per litre on petrol and diesel is likely.

Meanwhile, AK Sharma, Director – Finance at Indian Oil Corporation (IOC)  told CNBC-TV18, "We are passing on full benefits to the customers. It is a relief to the public. The government has taken the right call in the interest of public and we are with the government as far as giving the benefit to the customer is concerned, he said.

Explainer: How Daily Revision Of Petrol, Diesel Prices Works

There is a Rs 2 reduction in the basic price and including VAT the total benefit to the public will be Rs 2.50 per litre in petrol and around Rs 2.25 per litre in diesel in Delhi, he added.

Oil marketing companies (OMCs) are not earning any additional margin. We have been following a transparent mechanism, we work on a very wafer-thin margin, so we hardly have any scope for expanding or shrinking marketing margin, said Sharma.

If state governments reduce the VAT rates, it will also be passed on as and when it happens, he further mentioned.

For full interview, watch accompanying video...