Home > politics > policy > Govt rules out excise duty cut as petrol, diesel prices hit new highs

New Delhi: The government will not cut excise duty on petrol and diesel to cushion spiralling prices, which touched fresh highs on Tuesday, as it has limited fiscal space available to take any dent in revenue collections, a top finance ministry official said.

With imports becoming costlier because of a free fall in the rupee against the US dollar, the government believes the current account deficit will overshoot the target and it cannot “disturb fiscal maths by cutting excise duty on petrol and diesel," according to the official quoted above.

Petrol and diesel prices on Tuesday touched fresh highs as rupee dipped to a record low of 71.54 against US dollar, making imports costlier. Petrol price in Delhi rose to a record 79.31 a litre and diesel climbed to an all-time high of 71.34, renewing calls for a reduction in excise duty to cushion the spike. Almost half of the retail selling price of the two fuel is made up of central and state taxes. According to a price notification of state-owned fuel retailers, petrol price was on Tuesday hiked by 16 paise per litre and diesel by 19 paise.

Fuel rates have been on fire since the middle of August, rising almost every day due to a combination of a drop in the value of the rupee and rise in crude oil rates. Petrol prices went up by 2.17 per litre since August 16, while diesel rates climbed by 2.62, the biggest increase in rates witnessed in any fortnight since the launch of the daily price revision in mid-June last year.

Commenting on the relentless price rise, former finance minister P Chidambaram said: “Relentless rise in prices of petrol and diesel is not inevitable. Because the price is built up by excessive taxes on petrol and diesel. If taxes are cut, prices will decline significantly."

“We already know that there will be a hit on current account. Knowing that we can’t disturb the fiscal deficit, we should rather be fiscally prudent," according to the finance ministry official quoted above.

While fiscal deficit means expenditure higher than income, current account deficit (CAD) is the difference between the inflow and outflow of a foreign currency.

Last week, credit rating agency Moody’s Investors Service said there were risks of India breaching the 3.3% fiscal deficit target for the current fiscal, since higher oil prices will add to short-term fiscal pressures. The government has budgeted fiscal deficit to be at 3.3% of GDP in 2018-19.

Almost half of fuel price is made up of taxes. The Centre currently levies an excise duty of 19.48 per litre on petrol and 15.33 on diesel. Besides, states levy a value-added tax (VAT), the lowest being in Andaman and Nicobar Islands where a 6% sales tax is charged on both the fuel. Mumbai has the highest VAT of 39.12% on petrol, while Telangana levies the highest VAT of 26% on diesel. Delhi charges a VAT of 27% on petrol and 17.24% on diesel.

The Central government had raised the excise duty on petrol by 11.77 a litre and on diesel by 13.47 a litre in nine instalments between November 2014 and January 2016 to shore up finances as global oil prices fell, but then reduced the tax just once in October last year by 2 a litre.

This led to its excise collections from petro goods more than double in the last four years — from 99,184 crore in 2014-15 to 2,29,019 crore in 2017-18. States saw their VAT revenue from petro goods rise from 1,37,157 crore in 2014-15 to 1,84,091 crore in 2017-18.

A litre of petrol in Mumbai costs 86.72, while diesel is priced at 75.74. Prices in Delhi are among the cheapest in all metros and most state capitals due to lower sales tax or VAT.

Officials said the spike in rates was due to the fall in the exchange rate to a record 71 against the a dollar, depreciating by 2.5 in a month. Crude oil gained $7 a barrel in a fortnight.

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