International crude oil prices soaring past $90 per barrel may prompt the government to cut excise duties on petrol and diesel in the upcoming Union Budget 2022. The government may consider providing relief to consumers, as global uncertainties over the peaking oil prices could push the price of crude oil even further, analysts say. “With Brent crude prices soaring toward US $90/bbl, fuel consumption will anyway be constrained by the much higher oil prices – and a countervailing reduction in excise duties at this time will help cushion the impact on fuel consumers,” HDFC Securities said in a note Monday. Brent crude price jumped above $91 per barrel today.
India may cut excise duties to ease inflation pressure
Santanu Sengupta, senior India economist at Goldman Sachs, expressed a similar sentiment adding that the country may need to cut excise duties to ease inflationary pressure if oil prices soar further to $105 a barrel. “The government might be able to then consider further reduction in excise duties if oil gets to $105 a barrel by the end of the year,” Sengupta said in a recent interview to Bloomberg TV. Goldman Sachs has forecast that oil will hit $100 a barrel this year, the Bloomberg report added.
Higher fuel prices a burden for net importer
Fuel prices soared to Rs 100 a litre in cities such as Delhi and Mumbai last year pinching the pocket of fuel consumers. In response, the government announced cuts to excise duties on fuel in November ahead of Diwali, reducing excise duty on petrol by Rs 5 and that on diesel by Rs 10 a litre. Since India imports over 80% of its crude requirement, higher crude prices affect inflation, and fiscal deficit targets.
Oil-bond dues worth Rs 1.30 lakh crore
However the cuts were marginal in comparison to steep cumulative hikes since 2020. The government has been reluctant in cutting excise duties on saying that it has to pay for the oil bonds issued by the UPA government in the past. The previous government had issued oil bonds worth Rs 1.34 lakh crore to the OMCs (oil marketing companies), of which only Rs 3,500 crore of principal had been paid. While for the next six years, the government has a total debt obligation worth Rs 1.30 lakh crore.
Brent crude rose about 1% and was trading above $91 per barrel on Monday after peaking above the $90 a barrel mark last week. Supply concerns and political tension in Eastern Europe and the Middle East have put oil prices on track for their biggest monthly gain in almost a year, Reuters reported. Oil producers part of the OPEC+ will be meeting this week to discuss production targets.
