Monsoon dampens Centre’s excise kitty as diesel consumption falls
- Excise duty fetched ₹1.28 trillion in the April to September period, two-fifths of the Centre's full-year target of ₹3.19 trillion.
New Delhi: The government's excise duty collection in the first half of the financial year showed positive growth but failed to keep pace with the 5% target set for the whole year, mainly due to muted diesel consumption, showed official data.
Diesel consumption in the six months to September showed less than 1% volume growth in the wake of heavy monsoon showers that experts said could have impacted use of the fuel.
Sale of petrol, at less than half the volume of diesel, grew 7% annually during the same time. The reason for the difference is that diesel is the more widely used fuel for logistics, typically by trucks, which were hampered by heavy rains.
Also Read: What are the key changes proposed in the new excise bill?
The Centre’s excise duty collection grew at 2.9% in the first half of the fiscal, while overall tax revenue grew 12%, data from Controller General of India (CGA) showed.
Excise duty fetched ₹1.28 trillion in the April to September period, two-fifths of the Centre's full-year target of ₹3.19 trillion.
Taxes on petrol and diesel attract excise duty at an absolute rate per litre, rather than as a share of the price, and hence it is the volume that has a bearing on revenue collection, rather than the price. Crude oil produced in the country too, attracts a nominal excise duty at a specific rate, except for oil from certain blocks awarded prior to 1999, on which a 20% cess is collected as basic excise duty.
How does monsoon affect diesel consumption?
“Monsoon may affect diesel consumption because in those months, building activity may be postponed, affecting diesel consumption for transportation of construction materials. Also, diesel use for irrigation purpose may not be required in those months,” said D.K. Srivastava, Chief Policy Advisor of EY.
Also Read: A new excise law to refine 80-year-old Act will make life easier for oil firms
The finance ministry’s monthly economic report for September too acknowledged that the heavy monsoon rains had a calming effect on mining and construction activity this year, though it bolstered kharif sowing.
To be sure, the 3% improvement in diesel consumption in the first half is notable given a 10% contraction seen in the same period a year ago.
Data from Central Board of Indirect Taxes and Customs (CBIC) showed that between 4 April and mid-September this year, the windfall tax on domestic production of crude oil, levied as a special additional excise duty, was higher than the applicable rate in the same period a year ago, supporting excise duty collection this year.
Since 17 August, the windfall tax rate on crude oil has fallen below the level seen in the year ago period, data showed.
“The slow consumption growth in diesel could be a factor in excise duty collection growth remaining moderate in the first half of this year. Shifting consumer preference towards petrol vehicles and electric vehicles--though the volume may be small now in the case of electric vehicles-- needs to be watched while analyzing trends in tax collection from auto fuels,” said Abhishek Jain, indirect tax head & partner, KPMG.
Also Read: ‘Oil companies will need to hike petrol, diesel prices by at least ₹12 per litre’
An oil industry analyst said that diesel sales did not pick up this year amid weak demand from the agriculture sector. With healthy monsoon rains this year, the use of pumps for irrigation was largely lower, leading to the lower use of diesel, the analyst, who did not wish to be named, said.
Srivastava of EY said that the Central government’s fiscal deficit in the first half of this year remained in control, in terms of staying within the annual target of 4.9% of GDP or ₹16.1 trillion. (ends)
Catch all the Business News , Economy news , Breaking News Events andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.
Business NewsEconomyMonsoon dampens Centre’s excise kitty as diesel consumption falls
First Published:4 Nov 2024, 07:29 PM IST
- Top Gainers
- Top Losers
- 52 Week High