The government on Saturday announced a Rs 3 per litre hike in excise duties on both diesel and petrol in an attempt to mop up more revenue, even as falling demand on the back of the coronavirus outbreak and price wars between oil supplying countries have brought down retail fuel prices by about Rs 5 per litre since the start of the year.
A government notification said the special excise duty on petrol was hiked by Rs 2 per litre to Rs 10 per litre and to Rs 4 per litre for diesel. Road cess on both petrol and diesel has also been increased by Re 1 per litre to Rs 10 per litre, the notification added.
The increase is expected to push up petrol and diesel prices, which have fallen by about Rs 2 per litre each since late February. Post the hike, the total excise duty on petrol has risen to Rs 22.98 per litre and that on diesel has risen to Rs 18.83 per litre. Central and state taxes account for 54 per cent of the price of petrol and 45 per cent of the price in Delhi after the hike.
Government sources claimed the benefit of crude price reduction has been passed to consumers over the last few months and that this step of increasing duty has been taken to raise some revenue in view of a tight fiscal situation. Sources added this would help in generating the resources for the development of infrastructure. The government had earlier hiked the excise duty, and road and infrastructure cess for petrol and diesel in July 2019.
Sunil Kumar Sinha, principal economist at India Ratings and Research, said the hike was in line with measures taken when oil prices fell in 2014 and the government chose to pass on part of the benefit to consumers and used part of it to boost revenue. Sinha added consumption demand was down and lower oil prices were unlikely to boost demand significantly even if the entire benefit of lower prices was passed on the consumers.
“Even if the fall in crude price is transferred to consumers in terms of lower petrol and diesel prices, it will only ease some of the pressure which households are facing and given the sentiment it is unlikely that it would have translated into a consumption boost,” Sinha said. The price of petrol had hit a nine-month low of Rs 70 in the capital and that of diesel had hit a 13-month low of Rs 64.74 after a price war between major oil-producing countries slashed international crude oil prices by 25 per cent. Saudi Arabia triggered the crash in prices by announcing a sharp increase in oil production after Russia declined to reduce oil supply to contain a fall in oil prices due to declining demand in a meeting of petroleum exporting countries.
Roughly, every rupee hike in excise duty is expected to yield Rs 13,000-14,000 crore annually. Given that the hike in excise duty has been implemented from March 14, it’s expected to roughly translate into a gain of around Rs 1,600-1,700 crore for this fiscal year.
“Usually, the rough estimate is of Re 1 hike in excise yields Rs 13,000-14,000 crore annually. But global crude situation needs to be watched closely in the coming days. The fiscal arithmetic for fuel prices would depend on many factors going ahead,” a senior government official said.
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