Govt further hikes excise duty on petrol and diesel

With the the recent reduction in fuel prices and the steady decline in international prices of crude oil, the cash-strapped central government today announced a further hike in excise duty levied on petrol and diesel.

The government raised the excise duty on petrol and diesel by Rs2.25 and Re1 per litre, respectively, but said consumers will be spared a price hike as falling prices would more than offset the impact of the duty hike.

The excise duty hike is expected to yield an additional Rs4,000 core in the remaining part of the current fiscal. Along with the Rs6,000 crore expected from the earlier hike in excise duty, this would fetch the government an additional Rs10,000 crore.

In fact, state-run oil marketing companies have not been passing on the full benefit of the crude price fall to the consumers. Instead they have been dividing it between the government through higher excise duty and and to the consumer through a lower reduction in prices.

PSU oil marketing companies on Sunday announced a reduction in the retail prices of petrol and diesel by 91 paise per litre and 84 paise per litre, respectively, effective 1 December 2014, after international crude oil rates slipped to $70 a barrel (See: Commercial LPG prices slashed; petrol, diesel too cost less).

And now, with international price of the Indian basket of crude falling to $67.72 (Rs4,208.12) per barrel (as of 1 December) from $70.29 per barrel on 28 November, there is scope for further reduction in the prices of petrol and diesel.

Consumers may not benefit as the excise duty hike will take away the benefit of the latest crude price fall.

The move, which comes amid declining prices of crude oil in the international market, will boost government revenue and help it contain the fiscal deficit.

The revised excise duty on petrol and diesel came into effect from Tuesday, official sources said, adding that this will not affect retail prices of petrol and diesel.

This is the second hike in excise duty in three weeks. On 12 November the government had raised the excise duty by Rs1.50 per litre on both petrol and diesel but that did not have any impact on the retail prices (Govt hikes excise duty on petrol, diesel as prices fall).