Petrol, diesel excise raised to aid fisc

The government on Thursday raised excise duty on petrol and diesel by Rs 1.50 a litre each to help it achieve the fiscal deficit target for this year. The move may not result in an immediate hike in prices of petroleum products as oil marketing companies (OMCs) are likely to offset it by not announcing the reduction in rates expected this weekend.

The excise duty on normal or unbranded petrol was hiked from Rs 1.20 per litre to Rs 2.70 per litre and on unbranded diesel from Rs 1.46 a litre to Rs 2.96, a government notification said. The duty on branded petrol was raised from Rs 2.35 a litre to Rs 3.85 and on branded diesel from Rs 3.75 to Rs 5.25 per litre.

Before the duty hike, petrol cost Rs 64.25 a litre in Delhi and diesel Rs 53.35 a litre.

The government may get at least Rs 13,000 crore on an annualised basis from the hike, which means Rs 5,416 crore in the remaining five months of the fiscal year. However, since petroleum consumption goes up in winter, this might result in higher revenues. Finance ministry officials say Rs 6,000-7,000 crore may come in November-March 2014-15.

This may help the government only slightly in meeting the fiscal deficit target of 4.1 per cent of GDP after the April-October figure accounted for almost 83 per cent of the Budget estimate.

A senior Indian Oil Corporation (IOC) official said the annualised impact of the hike in excise duty would amount to an additional Rs 6,500 crore from the company alone.

The largest retailer sells 42 million tonnes of both diesel and petrol a year. Altogether, roughly 94 million tonnes of oil and diesel are sold in the country in a year.

"There will not be any immediate hike in fuel prices on account of the excise duty. OMCs will absorb this hike and not pass it on to consumers," revenue secretary Shaktikanta Das said.

Now, OMCs may not announce a reduction in petrol and diesel prices, which was expected this weekend. State-owned fuel retailers Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL), following the fortnightly review practice, were earlier due to revise rates of petrol and diesel on Saturday. Now, the net result would be retaining of oil prices. The fall in international oil prices had resulted in six consecutive cuts in petrol prices since August and two in diesel in the past month.

There is also a possibility of state-owned oil firms advancing the planned review of fuel prices due on Saturday to make the whole exercise price neutral for consumers.

Krupa Venkatesh, senior director, Deloitte in India, says, "This will definitely dampen the enthusiasm generated over the recent reduction in petrol and diesel prices, since OMCs would inevitably pass on the burden to the consumer. For industrial consumers, since there is no cenvat credit on these goods, the increase will add to the operating cost.”

The fall in global rates and the resultant cuts in retail prices had led to a loss of revenue to the exchquer, particularly for state governments. However, there was no loss to the central government on account of the reduction in petrol and diesel prices as excise duty on the two fuels is fixed and not ad valorem.

Unbranded petrol currently attracts a basic excise duty of Rs 1.20 per litre, a special additional excise duty of Rs 6 a litre and a road cess of Rs 2 per litre. Unbranded diesel attracts a basic excise duty of Rs 1.46 a litre and road cess of Rs 2 per litre. The total excise duty on unbranded petrol will rise from Rs 9.20 to Rs 10.70 per litre and on unbranded diesel from Rs 3.46 to Rs 4.96 per litre.

Branded petrol currently attracts an excise duty of Rs 10.35 per litre which would go up to Rs 11.85 per litre, and that on branded diesel would rise from Rs 5.75 to Rs 7.25 per litre.

The price of petrol was last cut by Rs 2.41 a litre on November 1. On the same day, diesel rates were reduced by Rs 2.25 per litre.