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Excise duty on petrol and diesel hiked by Rs 2.25 and Rs 1 a litre

Move to help Centre mop up Rs 4,000-4,500 cr

BS Reporters  |  New Delhi 

The government on Tuesday raised by Rs 2.25 a litre and diesel by Rs 1 a litre, the second such increase in three weeks. The step, announced with immediate effect, will help the government raise an additional Rs 4,000-4,500 crore in the remainder of this financial year.

After Tuesday’s revision, the basic excise duty on unbranded petrol will rise from Rs 2.70 a litre to Rs 4.95 a litre, while basic excise duty on unbranded diesel will increase from Rs 2.96 a litre to Rs 3.96 a litre, according to a statement tabled by Finance Minister Arun Jaitley in the Rajya Sabha on Tuesday.

Total excise duty on unbranded petrol, which includes a special additional excise duty of Rs 6 a litre and road cess of Rs 2 a litre, will rise from Rs 10.70 a litre to Rs 12.95 a litre. Total excise duty on unbranded diesel, including road cess of Rs 2 a litre, will increase from Rs 4.96 a litre to Rs 5.96 a litre.

Similarly, basic excise duty on branded petrol will increase from Rs 3.85 a litre to Rs 6.10 a litre and on branded diesel from Rs 5.25 a litre to Rs 6.25 a litre, according to the statement.

Total excise duty on branded petrol will rise from Rs 11.85 to Rs 14.10 a litre and on branded diesel from Rs 7.25 to Rs 8.25 a litre.

As the previous excise duty rise for petrol and diesel — Rs 1.5 a litre each — , announced on November 13, will help the exchequer raise about Rs 6,000 crore, the two excise duty hikes will together fetch the government about Rs 10,500 crore. This is expected to help the government contain its fiscal deficit at 4.1 per cent of gross domestic product this financial year.

The rise in excise duty is unlikely to lead to an upward revision in the retail prices of the two automobile fuels, with oil marketing companies (OMCs) indicating they will wait until another revision in prices. “The increase in duty will not be passed on to consumers immediately. We will take a call while revising prices later, based on the international crude rate,” said a senior executive from Indian Oil Corporation (IOC), the nation’s largest fuel retailer.

On Monday, OMCs had cut petrol prices by 91 paise a litre, the seventh reduction since August, and diesel by 84 paise a litre, the third straight cut in three months. OMCs were earning a margin of 25 paise a litre on sales of the two fuels and the government’s decision would not have a major impact on the health of these companies, an analyst said.

However, following the announcement of the excise duty rise on Tuesday, shares of OMCs crashed on BSE. While the IOC stock fell 2.55 per cent to close at Rs 351.20, those of Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd fell 4.06 per cent and 1.6 per cent to close at Rs 712.90 and Rs 594, respectively.

Asked if oil companies, while revising rates on Monday, had factored in a possible excise duty rise, an analyst said the price cut was a reflection of the drop in the international crude oil price — from $93.23 a barrel in the first fortnight of November to $87.21 in the second — and depreciation in the rupee — from 61.46/dollar to 61.8.

The Centre’s fiscal deficit for the first seven months of this financial year (Rs 4.75 lakh crore) was almost 90 per cent of the Budget estimate for 2014-15 (Rs 5.31 lakh crore). For the November-March period, the government will have to limit its excess expenditure over receipts at Rs 55,426 crore to meet the Budget target.

In the Reserve Bank of India’s monetary policy statement on Tuesday, Governor Raghuran Rajan said, “The fiscal outlook should brighten because of the fall in crude prices, but weak tax revenue growth and the slow pace of disinvestment suggest some uncertainty about the likely achievement of fiscal targets, and the quality of eventual fiscal adjustment.” He exuded confidence the Centre would be able to rein in its target on this front, saying the government appeared determined to stay on course.

For FY14, OMCs’ underrecoveries on subsidised sales of petroleum products stood at Rs 139,000 crore. Of this, the government bore Rs 85,480 crore as petroleum subsidy, while the rest was largely borne by upstream companies.

The government had budgeted for a 26 per cent reduction in its petroleum subsidy outgo this financial year, at Rs 63,000 crore, assuming total underrecoveries of about Rs 1 lakh crore. However, the historic decline in is likely to cut OMCs’ losses to less than Rs 70,000 crore this financial year, bringing proportionate relief for the government on subsidy sharing.

The fact that the twin hikes in and diesel isn’t being passed on to consumers will partly impact OMCs, as expectations of a decline in petrol and diesel rates were high, based on the fall in crude oil rates.

First Published: Wed, December 03 2014. 00:57 IST