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Eye on global crude: Fuel taxes may be cut if oil prices stay above $50/bbl

OMCs raised petrol price by Rs 2.58/litre, diesel by Rs 2.26/litre from Wednesday.

Written by Sunny Verma | New Delhi |
Updated: June 2, 2016 4:47:21 pm
Oil marketing companies raised petrol price by Rs 2.58 per litre and diesel by Rs 2.26 a litre from Wednesday. Oil marketing companies raised petrol price by Rs 2.58 per litre and diesel by Rs 2.26 a litre from Wednesday.

The Central government is set to cut excise duty on petroleum products if global crude prices stay over $50 per barrel for a sustained period. “We will consider reducing the excise duty on petroleum if crude stays beyond $50 for a certain period,” a senior government official said on condition of anonymity.

“The price has been volatile in recent weeks but the government does not expect the crude oil price to average above $50 per barrel in the current financial year,” the official said. Brent crude was down 23 cents at $49.66 per barrel (bbl) at 1705 GMT on Wednesday, while US crude’s West Texas Intermediate (WTI) futures showed a 25 cent decline at $48.85, after plumbing $47.75.

Oil marketing companies raised petrol price by Rs 2.58 per litre and diesel by Rs 2.26 a litre from Wednesday. This is the fifth increase in auto fuel prices since March, barring the reduction on April 16 when petrol price was cut by Rs 0.74 a litre and diesel by Rs 1.30 a litre. The central government raised duties multiple times to capture the benefit of sharp slump in oil prices since second half of 2014 and 2015. The finance ministry on Wednesday said oil prices are under control and extra collections from petroleum taxes are being used to build infrastructure in the country. “Oil prices, the government is keeping a close watch … it is under control so we don’t see any cause of alarm as of now,” Department of Economic Affairs Secretary Shaktikanta Das said on Wednesday.

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“We cannot disclose the comfort level on oil prices as it leads to various kinds of speculation. But currently the prices are well under control and there is no reason for any kind of alarm,” he said when asked about the comfort level beyond which the government will cut taxes auto fuels.

“The government is using entire collections from excise duty (on petrol and diesel) for building mainly rural infrastructure, roads and railways. This has a multiplier effect on the entire economy,” Das added. Additional collection from fuel taxes helped the government improve its revenues and meet the fiscal deficit target of 3.9 per cent of gross domestic product in 2015-16. Steady increase in fuel prices, however, can stoke inflation directly and indirectly through higher freight charges.

According to data from the Petroleum Planning & Analysis Cell data for March 2016, the Central government taxes were Rs 21.91 per litre of petrol as compared to the state taxes of Rs 13 per litre of petrol. On diesel, the Central taxes were Rs 17.71 per litre while the state taxes were Rs 7.57 per litre.

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