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Fuel prices at record high: Experts see cut in excise duty to curb impact on inflation

This is the fourth hike in petrol and diesel prices in a nine-day period, which has seen rates rise by about Re 1 per litre, after 30 days of no hike.

Written by Karunjit Singh | New Delhi | January 15, 2021 3:26:16 am
The price of Brent crude has consistently strengthened since the end of October — from around $37 per barrel to around $56 on Thursday.

The price of petrol hit an all-time high of Rs 84.70 per litre in the national capital as oil marketing companies (OMCs) hiked the cost of both petrol and diesel by 25 paise on Thursday. The price of diesel also set a record high of Rs 81.60 in Mumbai.

This is the fourth hike in petrol and diesel prices in a nine-day period, which has seen rates rise by about Re 1 per litre, after 30 days of no hike. According to experts, prices are likely to rise further due to a rally in crude oil unless the government reduces excise duties on petrol and diesel.

The price of Brent crude has consistently strengthened since the end of October — from around $37 per barrel to around $56 on Thursday.

Experts expect that the government will cut excise duties to curb the impact of higher fuel prices on inflation and to support a desirable valuation in the disinvestment of Bharat Petroleum Corporation Ltd. The central government hiked excise duty on petrol to Rs 32.98 per litre from Rs 19.98 per litre at the beginning of 2019, and increased the excise duty on diesel to Rs 31.83 per litre from Rs 15.83 over the same period to boost revenues.

“The prices of petrol and diesel are likely to rise further unless the government cuts excise duties,” said Vivekanand Subbaraman, analyst at Ambit Capital, adding the government was likely to cut excise duty to curb the impact of high fuel prices on inflation.

An analyst who did not wish to be named said the government would also not seek to cut the marketing margins of OMCs further as it seeks to get a good valuation on the divestment of Bharat Petroleum Corporation Ltd.

An ICICI Securities report noted that the net marketing margins of OMCs may fall below zero at current fuel prices, forcing either a cut in excise duty or a further hike in the prices of petrol and diesel.

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