In what comes as a major relief to beleaguered motorists across India and also India Auto Inc, the Central government last evening announced a long-awaited cut on petrol and diesel fuels. While the reduction in excise duty of petrol is Rs 5 a litre, that on diesel is twice that: Rs 10 a litre. In FY2021, the Centre got Rs 334,894 crore excise duty from petrol and diesel. 

Clearly, the Central government has heeded the call of consumers and industry for a price reduction in the two fuels. October 2021 had set a record in terms of monthly price increases – diesel had become costlier by Rs 8.78 a litre – or 8.97% – while petrol price in Mumbai rose by Rs 7.55 a litre – or 6.99% last month. 

Autocar Professional too had consistently posted fuel price rise updates, pointing out the unabated rise in fuel prices and that the Centre and State governments simply had to arrive at a decision to cut taxes on the not-so-wallet-friendly fuels. While the Centre has done its job just before Diwali dawned, it remains to be seen how many States across the country do their bit to alleviate the burden on fuel users. Some like Gujarat, Uttar Pradesh, Karnataka, Bihar., Tripura and Goa have cut their VAT on the two fossil fuels. Highest ever excise duty cut
November 4’s sharp price reduction in excise duty – from Rs 32.90 to Rs 27.90 for petrol and from Rs 31.80 to Rs 21.80 for diesel – is the highest ever yet. This price cut effectively somewhat rolls back the excise duty increases of Rs 13 a litre on petrol and Rs 16 on diesel which were imposed between March 2020 and May 2020, when global crude oil prices had fallen to record lows  – US$ 21 per barrel – amidst poor demand.

With the Rs 10 a litre excise duty cut, the price of diesel, which had crossed the Rs 100-a-litre mark first in Mumbai on October 9, and subsequently in other metro cities, now returns to sub-Rs 100 levels across all four metros. As per today’s prices, diesel costs Rs 94.14 a litre in Mumbai, Rs 86.67 in Delhi, Rs 91.43 in Chennai and Rs 89.79 in Kolkata.

The diesel price cut will offer considerable relief particularly to owners and users of diesel-engined commercial vehicles which clock far more kilometres every day compared to personal vehicles.

Highly taxed fuels: 50% petrol, 40% diesel 
The high price of petrol and diesel, even with the latest excise duty cut, is essentially attributed to the high level of taxation – excise duty and State VAT (Value Added Tax) combined. Nonetheless, November 4's excise duty cut has helped reduce the percentage of overall taxes on the two fuels.

Before today’s excise duty cut, petrol was taxed at 53% and diesel at 48%. Now, following the sizeable excise duty cut, total taxation on petrol has come down to 50% from 53% for petrol (Rs 51.90 from Rs 58.21 on November 1, 2021) and to 40% from 48% for diesel (Rs 34.48 from Rs 46.17 a litre on November).

There is little doubt that the frequent petrol and diesel price increases In October, the months before that and the first few days of November have been a result of soaring global crude oil prices – as of November 4, Brent crude is riding at $84.08. In September 2021, it cost an average $74.49 per barrel and in August, $70.75 per barrel.

Now that the Centre has effected the big excise duty cut, can all States across India, which look upon VAT as a big revenue source, also do their bit and slash tax? That will really make Diwali bright for scores of motorists across India and industry at large. It will also, importantly, help reduce inflation.