Petrol, diesel excise duty may be cut Rs 2-4/litre; PMO to take final call

Petrol and diesel prices touched new highs of Rs 76.87 and Rs 68.08 a litre, respectively, in Delhi on Tuesday
The Prime Minister’s Office (PMO) will take a final call on a cut in the excise duty on petrol and diesel, according to senior officials, with surging fuel prices creating ripples among consumers and politicians alike. The cut is likely to be in the range of Rs 2 to Rs 4 a litre, they added.

Petrol and diesel prices touched new highs of Rs 76.87 and Rs 68.08 a litre, respectively, in Delhi on Tuesday. In the Mumbai market, prices of petrol at Rs 84.70 a litre and diesel at Rs 72.48 were the highest ever. 

Petroleum Minister Dharmendra Pradhan is expected to meet oil-marketing companies on Wednesday to take stock of the situation. It is likely that the government may ask Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) to freeze prices as a temporary arrangement.

“The PMO has been provided data and inputs from OMCs. For the last one week, discussions have been going on regarding an excise duty cut, and a decision is imminent,” said a finance ministry official.

Talks are also on to reimburse the dealers their commission. When the global oil prices were down, the government had hiked the excise duty on fuel nine times, between November 2014 and January 2016, but reduced it only once, in October last year.

Finance Ministry officials said Rs 130-140 billion in losses per Rs 1 cut in excise duty on petrol and diesel was expected. “A duty cut of Rs 2 will amount to Rs 260-280 billion in losses. At a cut of Rs 4 a litre, the hit could be as high as Rs 520-560 billion,” an official said. 


The Centre’s budgeted estimate in revenues from petrol and diesel duties was Rs 2.43 trillion for 2018-19. 

A hit to revenue collections due to an excise duty cut could impact the fiscal situation this year, which has come under pressure just two months into 2018-19 because of high crude oil prices. The total fiscal deficit target for the year is Rs 6.24 trillion or 3.3 per cent of gross domestic product. Assuming all other factors, sources of revenue, and expenditure commitments remain constant, a maximum hit of Rs 560 billion could lead to a fiscal deficit of Rs 6.80 trillion, or 3.6 per cent of the 2018-19 nominal GDP projection of Rs 187.2 trillion. 

Another option before the government is to convince the states on bringing petrol and diesel under the GST regime. A decision on this rests with the GST Council. “We are following international prices based on an average of the last 15 days. We believe all petroleum products should come under the goods and services tax (GST),” said Sanjiv Singh, chairman of IOC. If prices sustain within the $60-80 a barrel mark, fuel subsidy for the financial year may exceed the budgeted Rs 250 billion. The Indian basket crude oil price was $77.04 a barrel on Tuesday. On the other hand, the Brent crude price was seen at $79.62 a barrel at one point.

If there is a cut in excise duty, the Centre may also ask states to go for a cut on their value added tax (VAT) to cut the prices further.

The finance ministry has provided data on levies on petrol and diesel to the PMO. At present, the Centre levies Rs 19.48 a litre excise duty on petrol and Rs 15.33 diesel. During the Karnataka elections, oil marketing firms had opted for a freeze in prices for 19 days. “There was no instruction from the government to hold prices during that time. We have been given complete independence in this regard,” Singh said. The firms did not change prices for 19 days in April and May but increased them after the poll results were announced. 

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