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Fuel duty windfall for government

Centre will gain Rs 1.6 lakh crore in additional revenues from the excise duty hike on petrol and diesel in May
Late on Tuesday evening, the government hiked the excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains from international oil prices falling to a two-decade low.
Late on Tuesday evening, the government hiked the excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains from international oil prices falling to a two-decade low.
(Shutterstock)

Our Special Correspondent   |   New Delhi   |   Published 07.05.20, 12:13 AM

The Union government will gain close to Rs 1.6 lakh crore in additional revenues this fiscal from a record hike in excise duty on petrol and diesel that has pushed total incidence of taxation on auto fuels to 70 per cent of the price.

Late on Tuesday evening, the government hiked the excise duty on petrol by Rs 10 per litre and that on diesel by Rs 13 a litre to mop up gains from international oil prices falling to a two-decade low.

Petrol price remained unchanged at Rs 71.26 a litre and diesel at Rs 69.39 as state-owned oil firms set off the excise duty hike against gains they accrued from the fall in international oil rates.

This is the second hike in excise duty in less than two months and will help the government garner over Rs 1.7 lakh crore in additional revenues annually at the 2019-20 level of consumption, industry officials said.

However, considering the slump in consumption because of travel restrictions during the lockdown, the gains in the remaining 11 months of the current financial year (April 2020 to March 2021) will be close to Rs 1.6 lakh crore, they said.

Big spike

The excise duty on petrol and diesel has risen a whopping 250 per cent and 800 per cent, respectively, since the Modi government assumed office in May 2014.

The duty on petrol has increased to Rs 32.98 in May 2020 from Rs 9.48 per litre in May 2014, while the duty on diesel has risen to Rs 31.83 litre from Rs 3.56 a litre .

Finance ministry officials said the duties were hiked to redress the tight fiscal situation.

Global crude prices have been favouring the Modi government as the price of the Indian basket crashed from $113 per barrel in May 2014 to $50 by January 2015. Currently the Indian basket costs about $23 per barrel. Oil prices have fallen by 53.1 per cent since the start of the calendar year till date.

The excise duty has been a big source of revenue for the government as the collection increased to Rs 147,978 crore at the end of the last fiscal from Rs 99,068 crore in 2014-15 .

“The consumption of petrol and diesel has largely remained subdued and is expected to fall further with the travel restrictions imposed by the various state governments,” Madan Sabnavis, chief economist of Care Rating, said.

Therefore, the impact on government revenue will depend a lot on how consumption picks up in future,” Madan Sabnavis, chief economist of Care Rating said.



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