Excise duty cut seen providing higher pricing freedom to OMCs

By: |
November 10, 2021 3:40 AM

OMCs had not hiked auto-fuel prices in conformity with the global crude movements between late February and May in the run up to Assembly elections in four states and the UT of Puducherry.

Indian OilAt present, the prices charged to dealers by Indian Oil Corporation are Rs 48.23/litre for petrol and Rs 49.61/litre for diesel.

The latest reductions in the excise duty on petrol and diesel by the Centre is seen to increase the ability of the state-run oil marketing companies (OMCs) to raise auto fuel prices if crude oil rates increase in the international market. The surge in global crude oil prices are likely to continue till the end of the year with the OPEC+ countries showing no signs of increasing production over the pre-determined levels till December, even as global crude demand is on the rise.

Analysts at Motilal Oswal Financial Services pointed out that amid growing concerns on the ability of OMCs to raise record-high prices further, investors remained wary of investing in OMCs in light of the upcoming elections in Goa, Manipur, Punjab, UP and Uttarakhand by the end of FY22. “While the cut in excise would not raise marketing margins immediately, they would increase the ability of the OMCs to raise prices if oil prices gain from hereon,” the brokerage firm added.

OMCs had not hiked auto-fuel prices in conformity with the global crude movements between late February and May in the run up to Assembly elections in four states and the UT of Puducherry. Between January and April, petrol price (in Delhi) had increased around 8% while the cost of crude had grown about 25%. To recover their marketing margins, retail petrol prices were kept unchanged (at Rs 101.84/litre in Delhi) between July 17 and August 21, while global crude corrected from around $73/barrel to about $65/barrel in the same period.

The Centre, on November 3, announced excise duty cuts of Rs 5/litre on petrol and Rs 10/litre on diesel. After the tax cuts, retail price of petrol in Delhi fell from an all-time high of Rs 110.04 a litre to Rs 103.97 a litre on November 4. Diesel rates dropped from Rs 98.42 a litre to Rs 86.67 a litre. The prices were unchanged till November 9. The tax reductions brought down the central taxes on petrol and diesel to Rs 27.9 per litre and Rs 21.8 per litre, respectively. In March and May 2020, surcharge and cess on auto fuels were cumulatively increased by Rs 13 per litre on petrol and Rs 16 per litre on diesel, leading to record-high auto fuel rates. At present, the prices charged to dealers by Indian Oil Corporation are Rs 48.23/litre for petrol and Rs 49.61/litre for diesel.

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