Petrol and diesel prices down but excise duty up

As global crude oil prices crash to a low of $50 and below a barrel from the high of $115 barrel last June, the government has been compelled to effect another round of price cuts.

On January 16, prices of petrol and diesel were cut by Rs 2.42 and Rs 2.25 a litre respectively albeit the excise for the two fuels was hiked by Rs 2 a litre each for both. Clearly, the price cut could have put more money in consumers’ wallets but the move to hike excise duty is mainly to increase government revenues and reduce the over-recovery of oil marketing companies (OMCs), estimated to be around Rs 5 a litre. The sharp fall in global crude oil prices is beneficial to large importers like India, which stands to benefit from a substantial drop in oil import bills and in turn a reduction in the fiscal deficit.

As per market estimates, as OMCs' current over-recovery due to the global fall in crude prices, after accounting for the price cuts and duty hikes, stands reduced to Rs 4.42 a litre for petrol and Rs 4.25 for diesel. This means OMCs now stand to make a profit of 0.58 paise a litre on petrol and 0.75 paise on diesel as the excise cess gets added on to government coffers.