Excise duty on petrol and diesel hiked by Rs 3 per litre

The Central government, in a recent notification, has increased the excise duty on petrol and diesel by Rs 3 per litre. The development is likely to help the government mop up substantial gains as the global crude oil prices are currently at a record low.

The Special Excise duty on petrol has been increased by Rs 2 to Rs 8 per litre,and Rs 4 in the case of diesel. Further, road cess on petrol has been increased by Rs 1 per litre to Rs 10 on both the types of automotive fuels, the notification said.

In a similar move earlier this month, the Maharashtra government proposed an increase in value added tax (VAT) on petrol and diesel by Rs 1. The VAT in Maharashtra is already amongst the highest in the country.

Will the Indian motorist benefit from lowered prices?

Brent crude prices currently stand at around $35 in comparison to 2014, when prices averaged about $93. Petrol and diesel prices have been on a downward trend, especially in the past few months after China slowed down accepting crude following the emergence of Coronavirus.

The decline in crude prices turned sharper on March 9, when oil major Saudi Arabia, which leads the cartel of oil producing countries OPEC, failed to get into an agreement with Russia over further curtailing of production to shore up the falling demand.

OPEC and non-OPEC countries such as Russia have been in an understanding for the last three years regarding production levels to keep a check on customer prices.

The failing of talks is said to have riled up Saudi Arabia which cut its crude prices, leading to chaos in the global oil market. Some analysts expect crude price to plunge to US$20-25/bbl or lower with oversupply in the global market.

India, which is the world's third largest oil consumer, imports about 84 percent of its needs. Industry estimates indicate that if crude prices rise by $1 per barrel, the net import bill will increase by Rs 3,029 crore and vice-versa. Further, if the exchange rate rises by a rupee to a dollar, the net import bill will increase by Rs 2,473 crore. This not only means a huge bonanza in terms of savings for Indian oil companies but also potential lower automotive fuel prices for motorists, as it would translate to much lower petrol/diesel bills.

However, if past trends are any indicator, then it will be safe to assume that all the benefits of lower crude are unlikely to get passed on to the end consumer.  The Central and State governments have in the past raised the duties and taxes in order to lap up some additional revenue collection. The current drop in prices comes at a time when the country is going through a prolonged economic slowdown. The ongoing Coronavirus pandemic has created further uncertainty around the economic turnaround.

Thus, in the final analysis, the Indian motorist will continue to feel the pinch of pricey fuel, despite global crude prices hitting record lows.