The government would mop up further benefits of a sliding international price of crude oil by raising the excise duty on both petrol and diesel by Rs 1.50 per litre so as to leave the pump prices unchanged.
Ahead of a possible reduction this weekend in prices of both decontrolled products, secretaries of finance and petroleum met on Tuesday to consider raising the excise duty matching the proposed cut so as to leave the consumers unaffected while benefitting the national exchequer which is groaning under a lower realisation of indirect taxes.
Moreover, it would partially make up for the loss in revenue from excise and customs duty because of the wider economic slowdown.
The first discussion on this issue was held last week in the finance ministry and the two secretaries Tuesday agreed to a duty hike before the state-run oil marketing companies revise rates of petrol and diesel on Saturday, said sources.
The Centre levies a specific per litre duty, unaffected by the price movement, of Rs 9.20 per litre of central excise duty is levied on petrol and Rs 3.46 per litre in the case of diesel. Apart from raising government revenue, the move is seen as a fund buffer to plug the deficit in case crude prices harden in the future. Also, a stiff price rise in such a situation would create more flutter were the government to pass on the crude price rise in terms of stiff increase in petrol and diesel prices.
Petrol has lost Rs 12 per litre in over a year while diesel has gone down Rs 5 per litre in less than three months. A further cut in pump prices would make future upwards revision definitely unpalatable politically, said sources.
Petrol prices are down to Rs 64.24 a litre in Delhi now from a peak of over Rs 76 in September 2013. Diesel is down from Rs 58.97 per litre to Rs 53.35 in Delhi and its fall gave the government leeway to take the politically tough decision to decontrol its price on October 18. Crude oil prices are forecast to dip further in December considering the futures trade, said sources.