Govt raises fuel excise duty by Rs 3 per litre -- steepest hike in 8 years

The government increased duties on petrol and diesel by Rs 3 per litre on late Friday, the steepest hike since 2012, as it sought to shore up revenues to exploit the steep fall in global crude prices. The Centre notified a Re 1 per litre increase in road and infrastructure cess collected as an additional excise duty and a Rs 2 per litre increase in special excise duty. Both these provisions were introduced in the Union Budget 2019-20 last July when duties had been hiked by Rs 2 per litre. This is the steepest hike in eight years when diesel prices were hiked by Rs 5 per litre and petrol saw Rs 6.28 per litre jump in prices to offset under-recoveries in the sector.

Though the change came into effect on Saturday morning, retail prices of the two fuels have not been hiked yet. A litre of petrol in Delhi cost Rs 69.87 per litre, down Rs 0.27 from yesterday. Diesel prices were at Rs 62.58 per litre, down Rs 0.31 over March 13. A senior oil marketing company executive said the duty hike would offset the fall in crude prices and not result in price hike from current levels.    

The current round of hike comes in the wake of global crude prices declining by more than 50 per cent since December 2019 from $65.5 per barrel to $32.32 per barrel on March 12. This was on the back of a deepening slowdown in the world economy as the outbreak of novel coronavirus has spread across the globe and a price war between major oil producing countries like Saudi Arabia, Iran and Russia. Last Monday saw the biggest intra-day fall in crude prices since the gulf war of 1991 when it declined over 31 per cent.   

India imports more than 83 per cent crude oil every year for more than $100 billion. A reduction in prices is good news but it has not benefited the end consumer much as repeated increase in taxes have diluted the impact of lower prices.

Since 2014, duties on petrol and diesel have been increased 11 times. A reduction has occurred only twice. Following Friday's notification, the excise duty on petrol will now go up to Rs 22.98 per litre, while on diesel it will be Rs 18.83 per litre. This represents a 142 per cent increase in duty on petrol since April 2014 and a 318 per cent increase on diesel.

Calls for lowering retail prices and passing on some benefit of the lower crude prices are growing louder but are unheeded so far. Against the 50 per cent reduction in crude prices, retail prices of petrol have only gone down by 7 per cent this year and 8 per cent on diesel.

"The international crude oil prices have been declined significantly from USD 63.27 per barrel as on 6th January 2020 to USD 31.13 per barrel as on 9th March 2020, while petrol prices in India (Delhi) decreased from Rs 75.69 to Rs 70.59 during the same period. However, significant 50 percent fall in the international crude oil prices has only resulted by a 7 percent decline in the domestic petrol prices," said DK Aggarwal, President, PHD Chamber of Commerce and Industry.

"At this juncture, we suggest a reduction in excise duties and VAT on petroleum, diesel and allied products by at least 25 percent, to bring down the prices of petroleum products, which will be a big relief to the industry, will boost and kick start economic growth, while reviving the spirit in the economy. This reduction in excise and VAT would reduce the prices of petrol and diesel by Rs 9-10 per litre and help lower inflation, boost consumer spending, make Indian industry competitive and boost overall revenue benefiting the government, industry and economy," he added.

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