Petrol, diesel duties up, will limit price cuts

By: |
New Delhi | Published: November 14, 2014 1:36:36 AM

Consumers will be spared any impact of the hike in excise duty on auto fuels of R1.50 per litre...

There will be no change in fuel prices as of now. (Reuters)There will be no change in fuel prices as of now. (Reuters)

Consumers will be spared any impact of the hike in excise duty on auto fuels of R1.50 per litre announced by the government on Thursday with oil marketers planning to absorb the increase. “There will be no change in fuel prices as of now,” Indian Oil Corporation (IOC) chairman B Ashok said, pointing out that the profits from sales of petrol and diesel would cushion the impact of the increase in the levy.

However, consumers are also unlikely to benefit from fall in the prices of auto fuels that would have resulted from the falling international prices of crude oil; oil retailers have been adjusting prices of auto fuels every fortnight in line with global prices. Without committing a view on a price cut, Ashok said that with pricing now decontrolled, the company was “free to review prices as and when required”.

With the price of crude oil having dropped to below $80 a barrel, a four-year low, state-owned oil retailers BPCL, HPCL and IOC are in a position to take a hit on account of the higher excise duty.

Post the hike, the excise duty for petrol goes up from R1.20 a litre to R2.70 a litre and for diesel from R1.46 a litre to R2.96 a litre. The higher
duty will fetch the government an estimated R13,000-15,000 crore annually.


The hike, experts said, was not unexpected given indirect tax receipts, estimated to grow at over 20% in FY15, had grown by a mere 5.6% in April-October to R2.85 lakh crore. This amounted to just 46% of the the full-year target of R6.2 lakh crore. “The government is exploring all options to boost tax collections,” an industry watcher said. The value of the Indian crude basket dropped 17.22%, or $16.42 a barrel, to $78.92 per barrel on Wednesday from $95.34 a barrel on September 30.

The NDA government deregulated the price of diesel in mid-October, allowing the price of the fuel to be determined by market forces both at the refinery gate and at the pump, a move that came against the backdrop of falling crude oil prices. State-owned oil marketing companies cut the price of diesel by Rs 3per litre on October18. As part of its reforms in the oil and gas sector, the government approved an increase in the prices of domestic gas prices from November 1, linking them to a modified version of the Rangarajan committee formula, which uses a weighted average of domestic gas prices in Canada, Russia, the UK and the US, based on annual consumption.

In respect of branded petrol and diesel, the price has gone up from Rs 2.35 per litre to Rs 3.85 a litre and Rs 3.75 a litre to Rs 5.25 a litre. Krupa Venkatesh, senior director at Deloitte in India, believes the move will dampen the enthusiasm generated over the recent reduction in petrol and diesel prices, since oil marketing companies would inevitably pass on the burden to the consumer. “For industrial consumers, since there is no Cenvat credit on these goods, the increase will add to operating cost,” Venkatesh said.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition