Owing to rising oil prices, the government has foregone, and is set to lose further, the additional revenues it garnered from the increased excise duties when the global oil prices were low.
When the fall in oil prices was maximum, the government's savings on imports were comparable to the gross fiscal deficit (total expenditure minus the total receipts, see Chart 1).
Increased revenues from higher excise duties allowed adequate room for fiscal correction, and helped the government maintain the fiscal deficit below 4 per cent of gross domestic product (GDP).
The benefit for consumers, however, is still not in sight. Consumers paid Rs 9.48 per litre as excise duties — basic, additional and special additional — on petrol and Rs 3.56 per litre on diesel, in May 2014. Today, they have to pay Rs 19.48 per litre and Rs 15.33 per litre, respectively.
When global oil prices started falling, the government began increasing the basic excise duty on petrol and diesel. This remained at its peak — Rs 9.48 per litre for petrol and Rs 11.33 per litre for diesel — for more than 500 days.
In 2015-16, revenues from the basic excise duty (which includes taxes on non-oil products as well) reached its peak at Rs 3.2 trillion (see Chart 2). Subsequently, as the crude oil prices started falling sharply, the basic excise duty was also increased accordingly.
In January last year, the crude oil price for the Indian basket was at $67 per barrel, its highest point after November 2014.
However, the Budget 2018-19 kept the effective taxes on both fuels unchanged.
Finance Minister Arun Jaitley at the Budget discussion referred to a range of global oil prices, which would give a certain level of comfort for the economy, and said: “Today we are almost on the outer periphery of that comfort position. If it breaches that, it creates an adversity for us. This is a hard fact beyond our control.”