Russia-Ukraine War: Govt May Cut Excise Duty As Crude Oil Crosses $100/Barrel Mark

Crude oil directly affects India’s retail price inflation as it jacks up the transport fuel prices.

The government may once again cut excise duty on petrol and diesel in order to check the probable spike in prices of commodities.

Crude Oil Crosses $100 Mark

This spike is expected to come in response to a sharp rise in crude oil prices due to the Russia-Ukraine war.

Crude oil prices have already breached $100 per barrel in the international market.

Brent crude prices stood at $102 per barrel on February 24.

The crude mix shipped by India called the Indian basket came close to $94 per barrel.

Direct Impact On Inflation In India

Crude oil directly affects India’s retail price inflation as it jacks up the transport fuel prices.

This, in turn, makes all items being transported such as household commodities costlier.

The retail price inflation in January has already crossed the upper band of the RBIs target range of 2-6%

Despite the global rise in crude oil prices, oil marketing companies have not increased petrol and diesel rates for the past 111 days in a row.

Possible Hike Post Elections?

With the current rise in Brent crude prices, diesel and petrol rates should have been inflated by Rs 10 per litre per analysts.

However, OMCs hiking the pump price of petrol and diesel after the assembly elections cannot be ruled out. 

The government may cut central excise duty on petrol and diesel to neutralise the hike.

If it doesn’t, the impact on price rise will be tremendous.

Soaring Inflation

If the average price of the Indian basket of crude rises to $100 per barrel, inflation will likely soar by up to 65 basis points.

The macro-economic projections in this year’s Union Budget has been made on the basis of crude oil costing around $75 per barrel, but the prices have leapt since then.

SBI economists estimate that if the government does cut excise duty on fuel and prevent their prices from rising, it will incur an excise duty loss of Rs 8,000 crore for a month.

PMO Talks With Ministries

Talks were held by the Prime Minister’s Office along with finance and oil ministries on the hike in global oil prices.

The PMO has asked the finance ministry to analyse how much excise duty can be absorbed by the government in the middle of the Ukraine crisis.

Wait And Watch Approach

Senior government officials have said that the Centre will cut fuel duties if the current surge in crude price continues beyond what state-run fuel retailers can absorb.

Excise duty on petrol and diesel is currently at Rs 27.9 a litre and Rs 21.8 per litre, respectively, after the duty cut announced in November last year.

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