As global crude oil prices plunge, India hikes excise duty on petrol, diesel by Rs 3 a litre

The Central government, in a recent notification, has increased the excise duty on petrol and diesel by Rs 3 per litre. The development is likely to help the government mop up substantial gains as the global crude oil prices are currently at a record  low. 

The Special Excise duty on petrol has been increased by Rs 2 to Rs 8 per litre and Rs 4 in the case of diesel. Further, road cess on petrol has been increased by Rs 1 per litre to Rs 10 on both the types of automotive fuels, the notification said. 

In a similar move earlier this month, the Maharashtra government proposed an increase in value added tax (VAT) on petrol and diesel by Rs 1. The VAT in Maharashtra is already amongst the highest in the country.

Will the Indian motorist benefit from lowered prices?
Brent crude prices currently stand at around  $ 35 in comparison to 2014, when prices averaged about $ 93. Petrol and diesel prices have been on a downward trend, especially in the past few  months after China slowed down in accepting crude following the emergence of Coronavirus.

The decline in crude prices turned sharper on March 9 , when oil major Saudi Arabia, which leads the cartel of oil producing countries OPEC, failed to get into an agreement with Russia over further curtailing of crude production to shore up the falling demand.

OPEC and non-OPEC countries such as Russia have been in an understanding since the past three years regarding production levels in order to keep a check on customer prices.

The failing of talks is said to have riled up Saudi Arabia which cut its crude prices, leading to chaos in the global oil market. Some analysts expect crude price to  plunge to US$20-25/bbl or lower with oversupply in the global market.

India, which is the world's third largest oil consumer, imports about 84 percent of its needs. Industry estimates indicate that if crude prices rise by $1 per barrel, the net import bill will increase by Rs 3,029 crore and vice-versa. Further, if the exchange rate rises by a rupee to a dollar, the net import bill will increase by Rs 2,473 crore. This not only means a huge bonanza in terms of savings for Indian oil companies but also potential lower automotive fuel prices for motorists, as it would translate to much  lesser petrol/diesel bills.

However, if past trends are any indicator, then it will be safe to assume that all the benefits of lower crude are unlikely to get passed on to the end consumer.  The Central and State governments have in the past raised the duties and taxes  in order to lap up some additional revenue collection. The current drop in crude prices has come a time when the country is going through a prolonged economic slowdown. The ongoing Coronavirus pandemic has created further uncertainty around the economic turnaround. 

Delhi motorists pay 33% excise on petrol, 30$=% on diesel
With the new hiked excise duty coming into play on March 14, motorists in Delhi tanking up on petrol will pay all of 33% excise duty (Rs 22.98 ) on a single litre which costs Rs 69.87, while those who have diesel-engined vehicles will pay 30% (Rs 18.83) on a litre of diesel, which costs Rs 62.58. See the detailed split of petrol and diesel price (below).

So, if motorists were expecting were expecting some big and happy news on the fuel price front, that may not happen other than a few paise dropping every other day. The 30% drop in global crude prices gives the government an opportunity to gather much of the gains and shore up its kitty, which has come under considerable pressure due to a slowing economy. Thus, most motorists will continue to feel the pinch of pricey fuel in his/her wallet, despite global crude prices hitting record lows.

Fuel price split: Indian Oil Corporation