Centre hikes excise duty on petrol, diesel

For the second time in a month, the Centre has hiked the excise duty on petrol and diesel.

This increase is unlikely to have an immediate impact on retail prices.

However, if global crude oil prices dip further, there is no guarantee that public sector oil retailers will reduce prices.

According to a statement in Parliament by Finance Minister Arun Jaitley, the excise duty on petrol has been raised by ₹2.25 a litre, and by ₹1/litre for diesel, with immediate effect. The increase is expected to fetch additional revenue of around ₹4,000 crore in the remaining four months of the current fiscal.

When the duty was raised on November 13 by ₹1.50 a litre, the Ministry had said that it expects to get ₹6,000-7,000 crore.

Although, excise duty is a key component in retail prices and usually passed on if there is hike, a senior Finance Ministry official said that the duty hike is “unlikely to lead to any increase in retail fuel prices. Falling international oil prices have given the Government cushion to raise duty”.

Tuesday’s surprise change in excise duty came a day after oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation reduced retail rates of petrol by 91 paise a litre and diesel by 84 paise a litre in keeping with global prices.

Since both diesel and petrol prices are deregulated, Government officials feel that softening of the international crude oil price has given oil retailers some room to absorb the duty hike.

Another argument is that when the international price was rising, the Centre had reduced excise duty.

While the Centre had forgone revenue, the States had continued to make money without much change in local levies, a Government official said, adding that “the Centre is justified in doing so”.

Surprisingly, a similar sentiment was echoed by oil retailers in the public and private sector.

But, the stock market did not buy this argument, as share prices of Indian Oil slipped over 2.5 per cent to ₹351.20; Hindustan Petroleum dipped 1.6 per cent to close at ₹594, and Bharat Petroleum closed at ₹712.90, down 4 per cent from Monday’s closing.

“The oil marketing companies had not passed on the November 13 duty hike to consumers, and one expects it will be the same this time around too,” said Krupa Venkatesh, Senior Director, Deloitte in India.

“We will have to wait and see how these duty hikes impact the quantum of reduction in petrol/diesel prices, should the crude oil prices continue to show the current declining trend.”

The price at which Indian refiners source their crude oil fell to $67.72 on December 1 from $78.92 a barrel on November 13, when the last duty revision took place. The price on April 1 was $105.

It is estimated that for every $10 fall in oil prices the oil import bill comes down by around $9 billion.