The increase is expected to push up petrol and diesel prices, which have fallen by about Rs 2 per litre each since late February. (Representational image)
The government Saturday announced a Rs 3 per litre hike in excise duties on both diesel and petrol in an attempt to mop up more revenues even as the falling demand on the back of the coronavirus outbreak and price wars between oil supplying countries had brought down retail fuel prices by about Rs 5 per litre since the beginning of the year.
A government notification said that the special excise duty on petrol was hiked by Rs 2 per litre to Rs 10 per litre and to Rs 4 per litre for diesel. Road cess on both petrol and diesel has also been increased by Re 1 per litre to Rs 10 per litre, the notification added.
The increase is expected to push up petrol and diesel prices, which have fallen by about Rs 2 per litre each since late February.
Rationale for the hike
Government sources claimed the benefit of crude price reduction has been passed to consumers over last few months and that this step of increasing duty has been taken to raise some revenue in view of a tight fiscal situation. Sources added that this would help in generating the resources for the development of infrastructure. The government had earlier hiked the excise duty, and road and infrastructure cess for petrol and diesel in July 2019.
Falling global fuel prices
The price of petrol had hit a 9-month low of Rs 70 in the capital and that of diesel had hit a 13-month low of Rs 64.74 after a price war between major oil-producing countries slashed international crude oil prices by 25%. Saudi Arabia triggered the crash in prices by announcing a sharp increase in oil production after Russia declined to reduce oil supply to contain a fall in oil prices due to declining demand in a meeting of petroleum exporting countries
Revenue impact
Roughly, every rupee hike in excise duty is expected to yield Rs 13,000-14,000 crore annually. Given that the hike in excise duty has been implemented from March 14, it’s expected to roughly translate into a gain of around Rs 500 crore for this fiscal.
“Usually, the rough estimate is of one rupee hike in excise yields Rs 13,000-14,000 crore annually. But global crude situation needs to be watched closely in the coming days. The fiscal arithmetic for fuel prices would depend on many factors going ahead,” a senior government official said.