Excise duty hike on petrol, diesel to add Rs 43,000 cr to govt revenue

Additional revenue will help govt meet its FY21 target of bringing down the fiscal deficit to 3.5% of GDP

The government on Saturday increased taxes on petrol and diesel by Rs 3 per litre each, a move that may fetch it an additional revenue of around Rs 43,000 crore in a year. 

While special excise duty was hiked by Rs 2, road cess was increased by Rs 1 per litre on the fuels, according to a notification issued by the Central Board of Indirect Taxes and Customs (CBIC). 

After the latest hike, the excise duty on petrol has gone up to Rs 22.98 a litre from Rs 19.98, and that on diesel to Rs 18.83 from Rs 15.83 a litre. The decision to raise the duties was taken in view of the tight fiscal situation and the recent decline in crude oil prices, sources said. 

The move, however, will not help the government much in reining in the fiscal deficit in the current financial year, as the coffers will be richer by just Rs 2,120 crore in the remaining days of this month. The deficit surpassed the revised estimates for FY20 by 28.5 per cent as of January. The extra revenue will, however, be helpful in meeting the FY21 target of bringing down the deficit to 3.5 per cent of the gross domestic product.

Finance Minister Nirmala Sitharaman said there would not be any increase in retail prices of petrol and diesel. “In fact, there is reduction in these prices today compared with yesterday,” she said.

Government sources said “this calibrated increase" would help generate resources for development of infrastructure.

India has planned to spend $1.4 trillion on improving infrastructure in five years. 

Sources said retail selling prices of petrol and diesel in the country were linked to crude oil prices. From about $66 a barrel in January, crude oil had come down to about $51 a barrel in the first week of March, and then sharply fell to $32 a barrel this week. 

Despite the hike in excise duty, the price of petrol in Delhi was seen at Rs 69.87 a litre, down from Rs 70 on Friday. On the other hand, diesel was down from Rs 62.74 to Rs 62.58 a litre.   

An industry analyst told Business Standard that every Rs 1 increase in excise duty would have an annual impact of Rs 14,200 crore on the exchequer and the current hike would lead to an addition of around Rs 43,000 crore to the government revenue.

Aditi Nayar, principal economist at ICRA, said the higher duties on petrol and diesel would shore up government revenues while preventing a sharper easing in inflationary pressures. 

Vishal Raheja of Taxmann said, “The global economic slowdown due to coronavirus has halted almost each sector and this hike in excise duty will help the government generate revenue resources for development of infrastructure.”

Consumers are unlikely to get the complete benefit of the slump in international prices as states are also likely to raise the value added tax (VAT) on petrol and diesel. 

A CARE Ratings report said that prior to Saturday’s hike, the government (centre plus states) was collecting around 107 per cent taxes (excise duty and VAT) on the base price of petrol and 69 per cent in the case of diesel.

The excise duty on petrol increased 142 per cent and diesel by 429 per cent since the Narendra Modi government took charge for the first time in 2014. On April 1, 2014, the excise duty on diesel was only Rs 3.56 per litre, and on petrol, it was Rs 9.48 per litre. Since 2014, duties were revised 11 times upwards and two times downwards.