Festive relief on fuel prices unlikely as oil simmers amid conflict

There were expectations that the Centre may cut taxes on fuel to ease local prices ahead of key elections.

India has limited scope to lower excise duties on fuel with global oil prices still volatile, three senior finance ministry officials told Moneycontrol.

“There is no discussion on any excise duty cut. Globally we know when prices get higher it gets tougher to cut taxes on fuel, that is what happens all over the world,” said one of the officials.

Global oil prices have been particularly volatile since September. Reversing last week’s downward trend, prices jumped more than 4 percent on October 9 on fears that clashes between Israel and Hamas could spread beyond Gaza. But crude prices had already been hovering at over $90 per barrel for the last few months, with Saudi Arabia and Russia extending cuts and stoking concerns over tight supply.

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“There is no proposal for an excise duty cut,” a second official confirmed. To be sure, a final decision to reduce taxes on fuel in India is usually a political call and is taken at the highest levels of the government.

Responding to a question on the surge in oil prices on account of the ongoing conflict between Israel and Hamas, Union Petroleum Minister Hardeep Singh Puri on October 9 said that India would handle its energy needs with “maturity”.

“As far as the energy sector is concerned, the place where the action is taking place in many respects is the centre of global energy. We will watch very carefully. We will navigate our way through this," Puri told reporters in New Delhi.

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Being the world’s third-largest consumer of crude oil, India is particularly vulnerable to any price fluctuations in global oil prices. Some economists have been of the view that lowering excise duty on auto fuels may be a more viable option than price cuts by oil marketing companies (OMCs) to cool domestic petrol and diesel prices. This, especially ahead of a busy election calendar next month, which coincides with India’s ongoing festive season.

The last time excise duty on fuel was reduced was in May 2022, which succeeded the cut that came in during the festive season in November 2021. The Centre’s collections from excise duties have been pegged at Rs 3.39 lakh crore for the current fiscal year, targeting a growth of nearly 6 percent over the revised estimates of the previous financial year.

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While the Centre has so far stayed away from lowering taxes on fuel, it has already taken a series of steps in the span of less than two months to reduce the cost of LPG (liquefied petroleum gas) cylinders ahead of crucial state and general elections. The latest step came on October 4, with the government approving a hike in the cooking gas subsidy under the Pradhan Mantri Ujjwala Yojana (PMUY).

However, a decision on tax cuts could be taken once revised estimates for revenue collection and expenditure are available. The Centre will start conducting meetings with various ministries from mid-October to take stock of expenditure patterns for the current fiscal year. This will help the government review the actual spending undertaken by various departments as well as calculate any savings that can be used for potential policy calls, a fourth official said.