Petrol, diesel excise duty slashed by Rs 10: How it impacts consumers, explained

The excise duty cuts mean that the levy on petrol now stands at Rs 3 per litre, and nil on diesel, which means that the Central government has relinquished a large part of its future revenue from the retail sales of the two fuels to provide some respite to the OMCs. The other option would have been for the OMCs to hike fuel prices, which would have had an inflationary impact on the economy, or continue absorbing extremely high international prices that were already impacting their financial health.

The total excise duty was Rs 21.9 per litre on regular petrol, and Rs 17.8 per litre on regular diesel, with Special Additional Excise Duty (SAED) being the biggest component in the excise duty structures for both fuels. The other components include basic excise duty, agriculture infrastructure and development cess, and road and infrastructure cess. With the SAED cuts, total excise duty on petrol now stands at Rs 11.9 per litre, while on diesel, it is Rs 7.8 per litre.

As for export duties, a levy of Rs 21.5 per litre has been imposed on diesel, and Rs 29.5 per litre on ATF. These duty rates will be reviewed on a fortnightly basis. According to back-of-the-envelope calculations by the government, the revenue gain from imposing these export duties would be around Rs 1,500 crore in a fortnight, Central Board of Indirect Taxes and Customs (CBIC) Chairman Vivek Chaturvedi said. The gains would only be a fraction of the estimated Rs 7,000 crore per fortnight of revenue loss the government will bear due to the excise duty cut.

“At a time when international diesel prices have surged sharply, the levy is designed to disincentivise exports and ensure that refinery output is directed first towards meeting domestic demand. Keeping Indian pumps fully supplied takes precedence over export opportunities, however commercially attractive those may be at current global prices,” the Petroleum Ministry said in a release.

Heavy under-recoveries, govt revenue impact

According to the Petroleum Ministry, at current international crude prices, under-recoveries stand at approximately Rs 26 per litre on petrol and Rs 81.90 per litre on diesel. The combined daily under-recovery being absorbed by OMCs is approximately Rs 2,400 crore.

“The excise reduction is not being passed on as a price cut at the pump. Instead, it directly reduces the under-recoveries being absorbed by public sector oil marketing companies (OMCs) — Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation — who have continued to supply fuel to Indian consumers at prices well below their cost of supply…The excise reduction offsets Rs 10 per litre of these losses, ensuring OMCs can continue to supply fuel without disruption while keeping retail prices unchanged,” the ministry said.

International oil prices are currently about 50% higher than the levels on February 27, a day before the US and Israel attacked Iran, setting the West Asia war in motion.

The excise duty reduction is expected to absorb around 30-40% of the annualised losses of OMCs on petrol and diesel sales at current prices, while the annualised fiscal hit to the government due to this burden sharing would be around Rs 1.55 lakh crore, according to Madhavi Arora, Chief Economist, Emkay Global. According to a note by ratings agency ICRA, a Re 1-per-litre cut in excise duty would result in a revenue shortfall of Rs 15,000-16,000 crore per year for the government; a Rs 10-per-litre cut would lead to a shortfall of Rs 1.5-1.6 lakh crore. India Ratings and Research estimates the annualised revenue foregone at Rs 1.7 lakh crore.

ICRA also said that if crude oil prices average at $100-105 per barrel, the OMCs would incur a loss of Rs 11 per litre on petrol and Rs 14 per litre on diesel.

Stress on fuel retailers’ finances was already visible. The public sector OMCs recently hiked premium petrol and industrial diesel prices, while keeping unchanged the retail prices of regular petrol and diesel, which are used by the vast majority of Indians.

Private sector fuel retailer Nayara Energy, however, raised petrol prices by Rs 5 per litre and diesel by Rs 3 per litre to partly pass on the higher input costs to consumers. Nayara, while being the largest private sector fuel retailer in India, has a share of just about 7% in India’s fuel retail network; the three public sector OMCs have a cumulative share of 90% and effectively control fuel pricing in India.

“International crude prices have gone through the roof in the last 1 month, from around 70 dollars/barrel to around 122 dollars/barrel. Consequently, petrol and diesel prices for consumers have gone up all over the world. Prices have increased by around 30%-50% in South East Asian countries, 30% in North American countries, 20% in Europe and 50% in African countries. The Modi Government had two choices—either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that Indian citizen is insulated from international volatility,” Petroleum Minister Hardeep Singh Puri said in a post on X.

“This decision is consistent with the approach adopted since the Russia-Ukraine conflict of 2022, when OMCs absorbed sustained losses and the Government cut central taxes to shield households and businesses from global price volatility. The same principle governs today’s intervention: India’s citizens and industry should not bear the cost of disruptions they did not cause. The Government will continue to monitor the evolving global energy situation and take all measures necessary to maintain supply stability and price protection for Indian consumers,” the Petroleum Ministry said.

‘No lockdown proposal; adequate fuel stocks available’

Amid reports of panic buying of petrol and diesel coming from various parts of the country, Puri said that rumours of a lockdown in India are “completely false”, and there is “no such proposal under consideration by the Government of India”. As rumours of a lockdown and fuel shortage spread, long queues were seen at fuel pumps in some parts of the country.

“The global situation remains in flux, and we are closely monitoring developments across energy, supply chains, and essential commodities on a real-time basis. Under the leadership of Hon’ble PM @narendramodi Ji, all necessary steps are being taken to ensure uninterrupted availability of fuel, energy, and other critical supplies for our citizens. We are fully prepared to handle emerging challenges. India has consistently demonstrated resilience in the face of global uncertainties, and we will continue to act in a timely, proactive, and coordinated manner,” the minister said.

On Thursday, the government assured that India currently has crude oil and fuel stocks to cover 60 days of consumption, and crude oil procurement for the coming two months has also been tied up, which means that the country is secure for the next few months. It said that there is no shortage of petrol and diesel anywhere in the country, and urged citizens not to fall prey to “a deliberately mischievous, coordinated campaign of misinformation that is being carried out to spread unjustified panic”.

The government also said that there is no liquefied petroleum gas (LPG) shortage for households, and the supply situation is improving with additional domestic production of the fuel, along with additional LPG cargoes coming in from non-West Asian suppliers. It said that around one month of LPG supply is “firmly arranged” through imports from non-West Asian suppliers, and additional procurement is being tied up on a continuous basis. This is the first instance of the government providing crude oil, fuels, and LPG stock information since the war began on February 28.

“Where isolated instances of panic buying occurred at select pumps, they were driven by deliberate misinformation spread by certain videos in social media. Despite the surge in demand on such pumps, fuel was dispensed to all the consumers and Oil company depots have been operational through the night to ramp up supplies. Steps have also been taken by Oil Companies to increase credit to petrol pumps to over 3 days from earlier allowed 1 day in order to ensure that there is no shortage of petrol and diesel at any pump due to working capital issues of pump owners,” the Petroleum Ministry said Thursday.