Government apprised of rising oil prices but excise duty cut financially imprudent now

Source: Reuters

Though the revenue department has had representations from various stakeholders on a cut in excise duty on petrol and diesel prices, a deduction at this point isn't economically feasible owing to the government's revenue constraints.

"There have been discussions on the same with stakeholders, including finance and oil ministry officials. This is ultimately a political call. But also strictly financially speaking, right now a cut is something we cannot afford," a senior government official said.

After letting oil prices go unchanged for 59 days, oil marketing companies hiked petrol and diesel prices by over Rs 2 and by nearly Rs 3.50, respectively since November 19.

Diesel is currently retailing at Rs 73.87 per litre in Delhi, while petrol is retailing at Rs 83.71 per litre. On December 9, petrol was selling at Rs 90.34 at pumps in Mumbai, according to Petroleum Planning and Analysis Cell's (PPAC's) data. Retail fuel prices are at their highest since October 2018.

The government had raised excise duty on March 14 and 15. The central government has increased the excise duty on petrol to Rs 32.98 per litre from Rs 19.98 and increased the excise duty on diesel to Rs 31.83 per litre from Rs 15.83 over the same period.

A hike of Rs 1 per litre in excise adds approximately Rs 14,500 crore to the government’s kitty.

Duties on petrol and diesel have been significantly raised by a number of state governments as well as the central government in order to boost revenues as the Covid-19 related lockdown brought economic activities to a standstill. This resulted in the current price of petrol nearing price levels of October 2018, when the per-barrel cost of India’s crude basket hit $80.

State and central taxes currently account for around 62 percent of the retail price of petrol and around 57.5 percent of the retail price of diesel in Delhi.

"We have held two meetings till now to discuss this. But one of the major revenue sources in the present scenario for the governments of both states and Centre is from the duties on fuel. So financially it will not be prudent to cut taxes at the moment," the official said.