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New Delhi/Mumbai: India on Thursday increased excise duty on petrol and diesel by 1.50 per litre, but customers won’t feel the pain as state-owned fuel retailers, which make a profit on the sale of these fuels, will absorb the hike.

The government hopes the duty hike will fetch 6,000 crore in the rest of the fiscal year, helping it shore up revenue collections and rein in the fiscal deficit.

Excise duty on unbranded petrol was hiked to 2.70 per litre from 1.20 per litre and unbranded diesel to 2.96 per litre from 1.46 a litre, a notification issued by the central board of excise and customs (CBEC) said.

Excise duty on branded petrol was increased to 3.85 a litre from 2.35 a litre and on branded diesel to 5.25 per litre from 3.75 a litre.

With the manufacturing sector continuing to remain weak, excise duty collections have contracted in the first seven months of 2013-14, falling 1.2% in April-October to 88,330 crore compared with the year-ago period.

CBEC must collect almost 2 trillion in excise duty in the remaining five months of the fiscal year to next March to meet budget estimates.

However, the oil marketers’ willingness to absorb the duty hike could also mean they are unlikely to pass on the benefit if crude oil prices fall further.

The international crude oil price for the Indian basket has come down to $78.92, according to a petroleum ministry statement on Thursday.

“Earlier, with an increase in excise duty, companies used to pass it through to the customers. But this time, there will be no additional burden on the customers as we have absorbed it completely," said Makrand Nene, director of marketing at Indian Oil Corp. Ltd, India’s biggest fuel retailer.

He said with the duty hike, there will be no more over-recovery left in the price of diesel that came about due to the fall in crude prices.

Another official from one of the three state-owned oil marketers explained that since India’s crude oil basket price had fallen to almost $80 per barrel, the companies have been making an additional profit of 1.50 per litre and a similar cut in diesel prices was expected shortly. “But with the excise duty increase, this over-recovery has been taken care of. So, while there will be no drop in diesel prices in the next two weeks, there will also be no hike to burden the customers again," he said. He declined to be named.

Mails sent to Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd remained unanswered.

“The hike in excise duty provides a cushion to the government against a sharp rise in crude prices globally," said Gagan Dixit, senior oil and gas analyst with brokerage Quant Capital Ltd. “If at all the crude prices shoot up and OMCs (oil marketing companies) increase the price of diesel and petrol as they are de-regulated, the government can reduce this increase in excise duty to lessen the burden on customers."

He said the increase in excise duty will not impact the share prices or valuations of the three firms in the long run.

“Since there are no longer any under-recoveries on account of diesel and petrol and both items have been de-regulated, this excise increase and the expected price cut are likely to be neutral for the credit profiles of the oil marketing companies," said Salil Garg, director, India Ratings and Research Pvt. Ltd, an arm of Fitch Ratings Ltd.

An earlier version of this story from the Press Trust of India incorrectly said retail prices of the fuels had been raised

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