In April-December 2019, the total contribution of the petroleum sector to the exchequer stood at Rs3.8 lakh crore, of which Rs2.2 lakh crore went to the central government and the remaining to the states.
With falling crude oil prices, the government has decided to hike special additional excise duty and road and infrastructure cess by a total of Rs3 per litre for petrol and diesel. Though retail prices of petrol and diesel are not seen to increase immediately, going by the consumption trends, the move will fetch an additional Rs47,000 crore to the government in FY21. In the remaining 15 days of FY20, the new levies will garner around Rs1,958 crore more from petrol and diesel sales for the central government.
In April-December 2019, the total contribution of the petroleum sector to the exchequer stood at Rs3.8 lakh crore, of which Rs2.2 lakh crore went to the central government and the remaining to the states. Of the Rs2.2 lakh crore, Rs1.5 lakh crore came from the central excise duties. From the consumption trend recorded in the first 11 months, petrol and diesel consumption is pegged at 114.1 million tonne (MT) in FY20.
Government sources said “while passing significant benefit to the consumers of the global price reduction in crude over last few months, this calibrated increase in duty rates would provide much needed resources for infrastructure and other developmental items of expenditure keeping in view the present fiscal position”.
Retail fuel consumers have not gained commensurately from the recent cuts in global crude prices. The price of Indian basket of crude fell 53% to $32.32 per barrel on March 12 since the January 8 peak it touched in 2020.
However, diesel prices in Delhi dropped to Rs62.89 a litre, just 8.6%, in the same period. Petrol and diesel prices may rise further in different parts of the country if the respective state governments also decide to increase their income by charging higher taxes. VAT on diesel is already more than 24% in major states like Maharashtra, Telangana, Tamil Nadu and Chhattisgarh.
Of course, the retail prices of petroleum products are not linked directly to crude oil price but are determined on the basis of a formula of trade parity pricing (80% weight to landed cost of notional import of petroleum products and 20% to export price of petroleum products). Also, there is usually a lag between the time the contract price for a certain quantity of crude is fixed and it is delivered at the refinery gate — this is even 40 days when crude is purchased from distant sources like the US or South America (India has diversified its sourcing of crude in recent years, cutting the relative share of the West Asian countries, the conventional sole sources).
While agreeing that from a buyer’s standpoint, the increased rates may offset a part of the benefit accruing to them with fall in crude prices, Abhishek Jain, tax partner, EY said: “This increased rate would to an extent help enhance government revenues; though the effective increase would also depend on the reduction in revenue collection with reduced crude prices and possible slump in demand.”