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NEW DELHI : The government is assessing the evolving geopolitical situation and will decide on cutting excise duty on fuels if the current surge in crude price lingers longer than can be absorbed by state-run fuel retailers, according to four senior government officials familiar with the development.
Despite the surge in global crude oil price, retail price of petrol and diesel in four metro cities remained steady on Friday, the same level where it has remained for months now, suggesting that state-run fuel retailers are deferring any price change warranted by global price fluctuations.
Wholesale inflation will see a larger direct impact than retail inflation because of the higher weight on fuel in the Wholesale Price Index. Petrol and diesel have around 2.5% weight in the Consumer Price Index and 13% weight in the wholesale index.
“Retail price of fuel is frozen for the time being," said one of the officials cited above, who spoke on condition of anonymity.
In Delhi, barring a reduction in petrol price in early December following a cut in value-added tax (VAT), retail prices of petrol and diesel remained steady since early November when the Centre reduced excise duty by ₹10 a litre on diesel and ₹5 a litre on petrol. State-run fuel retailers often tend to flatten any sharp spike warranted in petrol and diesel prices by keeping them unchanged during times of high volatility. “While there could be short-term increases in oil and commodity prices and some supply-chain disruptions, we don’t expect the situation to remain like that for long. There will likely be supply-side intervention at the global level, led by the US," said a second official, pointing out that a duty cut was not being considered at the moment. “Policy action related to duty, whenever decided, is taken at the highest level," he added.
Prime Minister Narendra Modi and senior ministers, including finance minister Nirmala Sitharaman and petroleum minister Hardeep S. Puri, held a meeting on Thursday to assess the evolving global situation.
An email sent to the finance ministry seeking comments on Friday remained unanswered at the time of publishing this story.
A third official said oil prices may start falling in a few weeks or months. “The US may allow Iran to export more oil, which could add a supply of three million barrels a day," he said, “Besides, the US could revisit its restrictions on reopening shale oil and gas wells. It is obvious that the oil situation will not remain bad forever," he said.
A ₹1 cut in excise duty on petrol costs the exchequer ₹4,000-5,000 crore, while the same for diesel costs ₹14,000-15,000 crore. Excise duty on petrol and diesel is currently at ₹27.9 a litre and ₹21.8 per litre, respectively, after the duty cut announced in November last year.
Pronab Sen, a former chief statistician of India, said that the government is unlikely to cut excise duty at the moment. “Given the focus this government has on the fiscal deficit target, I don’t expect any excise duty rate cut to happen," said Sen, country director, International Growth Centre.
A fourth official, who also spoke on condition of anonymity, said that the government may wait and evaluate the emerging situation and its impact on oil prices before deciding on any duty revision. Bloomberg reported on Friday that global oil price extended its retreat from a seven-year high, slipping back below $100 a barrel in London in a volatile market.
Aditi Nayar, chief economist at rating agency Icra Ltd, said that the impact of high oil price on inflation would depend on when and by how much retail selling prices are raised and whether excise duty is cut to absorb some of the pain. India’s retail inflation had accelerated to a seven-month high of 6.01% in January, breaching the Reserve Bank of India’s upper tolerance band for the first time since June.
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