Centre eyes excise duty hike as global crude price slips to $60/barrelhttps://indianexpress.com/article/business/economy/centre-eyes-excise-duty-hike-as-global-crude-price-slips-to-60-bl-5467955/

Centre eyes excise duty hike as global crude price slips to $60/barrel

A rupee per litre cut in excise duty leads to a revenue loss of about Rs 14,000 crore a year to the Centre. Any hike in excise duty on petroleum products, however, would mean full transition to consumers in terms of higher retail prices.

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The move, if implemented, would mean a booster for government finances, especially when they are being seen under strain to meet the fiscal deficit target of 3.3 per cent of the GDP for the current financial year.

With the sustained slide in global crude prices to around $60 per barrel from a high of $86 a barrel in October 2018, the government could consider raising excise duty on petroleum products, a reversal of its decision to cut excise duty on them last month. The recent sharp decline in global crude oil prices, nearly 30 per cent in a month, provides room for a hike in excise duty of Rs 1-2 per litre on petroleum products, a government source said.

“When we hiked the excise duty last month, crude oil prices were hovering above $85 a barrel and now it has come down to around $60 a barrel. The government may consider hiking the excise duty (on petroleum products) as there is a window to raise it by Rs 1-2 per litre,” the source told The Indian Express.

The move, if implemented, would mean a booster for government finances, especially when they are being seen under strain to meet the fiscal deficit target of 3.3 per cent of the GDP for the current financial year.

A rupee per litre cut in excise duty leads to a revenue loss of about Rs 14,000 crore a year to the Centre. Any hike in excise duty on petroleum products, however, would mean full transition to consumers in terms of higher retail prices. Sources say that an increase in excise by the Centre may be followed by hike in VAT by states too leading to a further rise in retail prices in respective states.

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Retail prices of petrol, diesel have been on a downward trend tracking the fall in global crude oil prices. On Tuesday, diesel price in Delhi was Rs 68.89 a litre and petrol price was Rs 74.07 a litre, down about Rs 5-7 a litre from the highs seen early last month. In October, following a rise in price of Brent, the benchmark for more than half the world’s oil, and a sharp drop in rupee value against the dollar, which resulted in expensive crude imports, the government had announced a cut of Rs 2.50 per litre for petrol and diesel and had urged states to match the price reduction.

Following Finance Minister Arun Jaitley’s appeal to state governments to match the Centre’s cut in fuel prices, BJP-ruled states — Maharashtra, Gujarat, Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Jharkhand, Haryana, Assam, Arunachal Pradesh, Tripura, Chhattisgarh, Goa — and Jammu and Kashmir had also announced relief of another Rs 2.50 per litre, taking the total price cut to Rs 5 per litre.

Of the Rs 2.50 per litre reduction, Rs 1.50 per litre of excise duty cut was borne by the central government and the impact of the remaining Re 1 per litre cut was absorbed by oil marketing companies, which was viewed as retracing the path of the burden sharing formula put in place by the UPA government when petroleum product prices were regulated — a third of the burden to be borne each by the government, oil marketing companies and the consumers.

The cut of Rs 1.50 per litre was estimated to result in a loss of Rs 21,000 crore for the full year but since only six months remained in this financial year at the time of the announcement of the excise duty cut, the impact was estimated at Rs 10,500 crore. The Centre, had, however, defended its decision as “perfectly good economics” and not a return to days of regulated oil prices. “This is perfectly good economics because we want consumers to spend on buying other materials also, rather than only spend on energy. And therefore, it is good economics also to increase purchasing power of consumers, and to do it without impacting fiscal deficit is still good economics and reducing oil prices if you say is good politics, so be it,” Jaitley had said last month. In June this year, Jaitley had said that with higher revenues, the government had been able to spend more on infrastructure, rural India and social sector schemes while maintaining fiscal prudence and keeping the fiscal deficit on the downward glide path.

Brent crude futures fell $1.00 to $59.48 a barrel, a 1.7 per cent loss, 12:53 p.m. EST (1753 GMT). US West Texas Intermediate (WTI) crude futures fell 84 cents to $50.79 a barrel, a 1.6 percent loss. Prices fell to their lowest since October 2017 last week – Brent at $58.41 and WTI at $50.15.