Factual details of how much the Central government generates annually from excise duty on petrol and diesel was revealed in Parliament yesterday. In FY2021, the government collected all of Rs 334,894 crore from excise duty on the two fossil fuels. While petrol contributed Rs 101,598 crore as excise duty, diesel’s contribution was more than twice that at Rs 233,296 crore.
Compared to FY2020’s combined petrol-diesel excise duty collection of Rs 178,311 crore, FY2021’s Rs 334,894 crore is a massive 87.81 percent year-on-year increase. This increase in excise duty collection, despite much reduced vehicle use and fuel purchases in the first few months of last fiscal due to the pandemic which saw a spate of lengthy lockdowns across the country, can be attributed to several fuel price hikes.
One reason for the considerable 88 percent YoY increase in excise duty collection was the hefty increase in tax on the two fuels in mid-March 2020. The Rs 19.98 per litre excise duty on petrol (in effect from July 6, 2019) was hiked to Rs 22.98 (from March 14, 2020) and thereon to Rs 32.98 (from May 6, 2020). This constitutes an increase of Rs 13 a litre.
Diesel, which outsells petrol by a huge margin in the country, given its ample use by big and small commercial vehicles, had an excise duty of Rs 15.83 per litre (from July 6, 2019). This was hiked to Rs 18.83 (from March 14, 2020) and saw a 69% jump to Rs 31.83 (from May 6, 2020). This constitutes an increase of Rs 16 a litre – Rs 3 more than petrol. This explains why the collection of excise duty from diesel is more than twice than of petrol.
As per the written reply by the Minister of State for Petroleum and Natural Gas Rameswar Teli in the Lok Sabha, the price of petrol was hiked 76 times and that of diesel by 73 times in FY2021. As a result, within the span of 12 months – from April 1, 2020 to March 31, 2021, in New Delhi, petrol became costlier by Rs 20.97 a litre and diesel by Rs 18.58 a litre. Motorists in Mumbai had to pay more than their Delhi brethren – Rs 21.70 more for a petrol litre and Rs 22.77 more for a diesel litre.
As per the data, petrol saw price reductions 10 times and diesel 24 times. There no hikes or reductions on 153 days for petrol and 168 days for diesel.
It didn’t help motorists’ cause as along with the Centre’s hiking excise duty consistently through the year, most States did the same with Value Added Tax (VAT).
Highly taxed fuels
One of the reasons for the wallet-busting fuel prices is the high level of Central and State taxes. For instance, in Delhi, on July 16, 2021, petrol cost Rs 101.54 a litre of which 32.40% (Rs 32.90) comprises excise duty and 23% (Rs 23.43) is State VAT. Club the two taxes and motorists are paying Rs 56.33 or 55.467% per petrol litre as tax.
As regards diesel which cost Rs 89.87 a litre in the capital city on July 16, the excise duty component was Rs 31.80 or 35.38%, while VAT is Rs 13.14 or 14.62% of the retail price. Together, the two taxes account for Rs 44.94 or exactly 50% of the price a motorist pays to tank up on diesel.
Will fuel prices soften?
This is the multi-crore question beleaguered motorists and industry are asking. To briefly put it, expecting petrol and diesel prices to fall soon is expecting too much. Although OPEC, which had cut production by a massive 9.6 million tonnes a day from May 2020, has recently agreed to increase supplies by 400,000 barrels a day from August 2021, this is too small to warrant any major drop in crude oil prices.
With most global economies, particularly the USA, Europe and China swinging back into work mode, demand from the transportation and shipping industries is on the rise. This is amply seen in the price rise of crude oil basket. Having plummeted to $19.90 a barrel in April 2020, when the world first saw the crippling impact of the pandemic, crude oil prices have gradually rose to cross $30 a barrel a month later and ended CY2020 a tad short of $50. This year has seen a consistent rise the January to July period has seen it increase to above $70 a barrel. However, prices are cooling and today’s Brent crude oil price is $68.72 a barrel. Not that it will make much difference to the Indian motorist’s wallet. He/she should expect another fossil fuel price increase . . . possibly tomorrow or the day after.