Petrol At Rs 100: Experts Claim Govt Can Reduce Excise Duty By Rs 8.5/Litre Without Cutting Revenues

At the ongoing rates of Rs 91.17 a litre of petrol in Delhi and Rs 81.47/l for diesel, fuel rates have never been higher than it has over the last 9 months. 

The prices have remained static for 4 days in a row now as oil marketing companies (OMCs) decided on keeping prices stable due to international oil markets witnessing a softening. 

Crude price in the global market was nearly $ 67 a barrel which has now come down to $ 63/b on the back of forecasts that oil producers will be easing production cuts from April, which along with the backdrop of the pandemic has kept rising prices somewhat at bay.

Govt Can Meet Budget Targets Despite Reducing Prices

Experts have deemed that the government could cut oil prices without hampering excise duty revenue targets even as it brings down fuel prices by Rs 8.5/l.

FY22 budget estimate of Rs 3.2 lakh crore could be achievable even if prices are cut by Rs 8.5/l on or before April 1 2021 which would generate Rs 4.35 lakh cr, exceeding budget targets. 

Chances are good that an excise duty cut may be imminent since demand has seen revival, talks of future privatisation plans and inflation concerns.

Between Mar and May of last year excise duty on petrol was raised by Rs 13/litre and Rs 16/l for diesel, bringing the total to Rs 32.9/l on petrol and Rs 31.8/l for diesel. 

The costlier excise duty was meant to capitalise on profits rising from international crude oil prices dropping to a 20-year low.

Even as oil prices are seeing a recovery the taxes however have not seen a return to original levels.

ICICI Securities were quoted as saying “if the cut is more modest , which we expect, FY22 excise duty will be higher than the budget estimate”.

State and central taxes account for approx 60% of petrol price and 54% for diesel. 

Constant Price Fluctuations

Rajasthan and MP have the highest VAT rates on fuel in the country, wherein a few areas have seen regular petrol rates topping the Rs 100- mark. 

To pick up gains coming from ever decreasing global oil prices the govt raised excise duty on 9 different occasions between Nov 2014 and Jan 2016.

The figures in that period are a hike by Rs 11.77/l petrol and Rs 13.47/l diesel which helped the govt earn Rs 242,000 cr from Rs 99,000 cr in 2014-15.

Then later in Oct 2017 excise duty was cut by Rs 2 and Rs 1.50 in 2018. But again in July 2019 it saw a hike of Rs 2/l, then consecutively a Rs 3 /l  hike on Mar 2020.

Then in May there was again a hike of Rs 10/l and Rs 13/l for diesel. 

What The Future Holds

Given that fuel rates are benchmarked to a 15-day rolling average of global prices and dollar exchange rate, the prices will likely see an upward trend in the next few years even if crude prices stabilise.  

Honchos over at oil companies have forecasted that fuel prices will rise further as days go by since retail prices have to be matched with global developments so as to cut down losses for OMCs. 
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